Financial Statements

Financial Statements

There are four different financial statements that form the backbone for financial accounting. Assets, liabilities, expenses, and revenues are arranged on the different financial statements to present a picture of what a business owns and owes, how much revenue and expenses there are, how much was paid out to the shareholders and what was retained for future growth, and how much cash was obtained and how it was used. The four financial statements are the income financial statement, balance financial sheet, retained earnings financial statement, and the statement of cash flows.

The income statement reports the success or failure of the company at a given period of time. This financial statement is useful for inventors to predict the future net income of the company. Investors can use the information to buy and sell stock depending on their beliefs about the future performance of the company. Creditors will also use the information from the income statement to predict future earnings and determine if the company will be profitable enough to repay its loan.

The retained earnings statement is a reflection of the amounts and causes of changes in the retained earnings over a period of time. Traditionally, the time period is the same as period covered in the income statement. The first line of the statement is the beginning retained earning amount. The company from there will add net income and deduct dividends to determine the retained earnings at the end of a specific period. The company will deduct rather than add if it has a net loss in the retained earnings statement. The financial statement can be monitored to evaluate dividend payment practices.

The balance sheet provides a picture of a company’s financial position at a given time. The three sections of a balance sheet are individual assets, liability, and stockholders’ equity. The equation for this financial statement is assets = liabilities + stockholders’ equity. A classified...