Week 4

Four Types of Financial Statements

Patricia Panagakos

University of Phoenix

Principles of Accounting I

ACC/290

Mary Heslinga

February 14, 2012

Four Types of Financial Statements

Financial statements are key components in showing the financial health and growth opportunities of any organization. A company's financial information can get complicated, however it is important for business owners, management, and shareholders to have an understanding of how to read these statements and how they relate to one another. The four basic financial statements that most companies use to show the health of the organization and prepare for the future are the income statement, retained earnings statement, balance sheet, and statement of cash flow.

The income statement reports the success or failure of the company over a specific period of time. An organization's revenue, expenses, profits, and losses are listed on the income statement. Revenue is money earned from a company’s normal business operations. The expenses on the income statement are the costs associated with earning the revenue. Revenues minus expenses, plus profits minus losses, equal net income or net loss. The dollar amount of net income listed on the income statement is also found on the cash flow statement. This information is vital to business owners and management as it can help determine future growth of the company or show where cuts may need to be made. It is also critical to creditors and shareholders as it can determine the borrowing power of a company for future expansion and dividend payouts to shareholders.

The retained earnings statement is part of the balance sheet and can be a key statement for future investors and current shareholders. The retained earnings sheet shows whether or not the company was profitable and what it paid out to owners, shareholders and what the company retained for future expansion. What is paid out to shareholders is up to each individual company, however...