Financial Statements

Financial Statements

ACC-220

Glenn Dakin

Financial Statements

A company is involved in three types of activity; financing; investing and operations. In order for a company to be able to formulate and set objectives involving those activities, they must be able to view the historical, current and future financial status of the company. This information is provided by the accounting department in the form of a series of financial statements such as the balance sheet; income statement; retained earnings statement; and the statement of cash flows.

The balance sheet is a picture of the assets and liabilities of the company at a specific point in time. Assets are the resources that are owned by the company, and they take the form of property such as the building and land in which the company is located, inventory as well as the equipment used by the company to operate the business. The most important asset owned by the company is cash, both the current available cash in the bank and future cash owed to the company in the form of accounts receivables. The liabilities are the debt and obligations owed by the company to creditors such vendors, employees, as well as stockholder’s equity. Stock holder’s equity is the claims or liabilities owed to the owners of the company. The balance sheet is used by creditors to evaluate if the company can potentially repay any loans. Creditors evaluate the ratio of resources to debt to see if the company has enough assets to cover future liabilities.

The next statement in the financial picture is the income statement, which is also called the profit and loss statement. The income statement presents a picture of how a company has performed at a certain point in time. The income statement lists all the revenues and expenses for a certain period of time and the resulting ending balance is the net worth or net loss for the company at that time. The income statement is a picture that is used by investors to predict how...