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Financial Statement Differentiation

Being an effective manager or business owner will require a firm understanding of finical statements, even if the business employees a separate accountant. Knowing the numbers that pertain to the business will be the only way to make educated decisions for the success of the business. This paper will describe four parts of a business financial statement as; “Income statement, Retained Earnings Statement, Balance Sheet, and Statement of Cash Flow” (Kimmel et al., 2009, p. 12).

Income Statement

The Income Statement is also-called a Profit or Loss statement. The report can show if the company has made profit or loss during the specific time period by showing the revenues and expenses the company has incurred. “The income statement reports the success or failure of the company’s operations for a period of time…The income statement lists the company’s revenues followed by its expenses” (Kimmel et al., 2009, p. 12). Managers will use the data provided by the income statement to determine the revenues and expenses are being utilized in the most beneficial manner or if any expenses need to be revised. Investors use the income statement to obtain an idea of future income and earnings.

Retained Earnings Statement

A retained earnings statement summarizes the amount of money kept in the company to cover future expansion or expenses. “Retained earnings are the net income retained in the corporation” (Kimmel et al., 2009, p. 13) for a specific period. A company pays dividends to their shareholder out of the company profits but many businesses will elect to retain all or most of the funds to put back into the business. Investors use this statement to determine how a company pays out dividends; however, a startup company would be expected to reinvest the funds to grow the company. Creditors are interested in the statement to determine how much the company pays out in dividends to shareholders that could reduce funds to pay for debts....