Acc220 Week 2 Assignment

Comparative statements are financial statements that report information for more than one period. These statements allow users to compare the financial position of the business at the end of an accounting period with that of previous periods. Some comparative statements include a balance sheet, an income statement, a retained earnings statement, and a statement of cash flows.

A balance sheet is a report that reports assets and claims to these assets at a given point in time. Assets are resources that are owned by a business. The claims to the assets are divided into two categories: claims of creditors and claims of owners. Liabilities are claims of creditors, which is any amount owed to a creditor in the form of debt and other obligations. Claims of owners are also called stockholders’ equity. The equation assets = liabilities + stockholders’ equity is where the term balance sheet got its name.

An income statement reports the success or failure of a business for a period of time. The income statement lists the company’s revenues, expenses, then the net income or net loss. Investors become interested in a company’s income statement to view whether or not the company has had a net income or net loss. Investors can be what keep the company in business, depending on what the net income or net loss is. Creditors use the income statement to try to predict the future of a business.

A business also uses a retained earnings statement. Retained earnings is the net income that a corporation has retained. This statement shows the amounts and causes of changes in retained earnings during a period of time in a business. The first line of a retained earnings statement is the beginning retained earnings amount. Net income is then added, dividends are deducted and this gives you the retained earnings at the end of the period. Financial statement users monitor the retained earnings statement to evaluate dividend payment practices. Some investors seek companies that pay high...