Financial_Statement

Financial Statements Cheri Griggs ACC/290 Principles of Accounting I May 1, 2013 Robert Hammer Financial Statements The four basic financial statements are the balance sheet which is to report the financial position of an accounting entity at a particular point in time. The balance sheet a business can really learn a lot about how the company is doing. The formula for a balance sheet is Asset = Liabilities + Equity. Assets can be classed as either current assets or fixed assets. Liabilities represent the portion of a firm's assets that are owed to creditors. Equity is referred to as owner's equity in a sole proprietorship or a partnership, and stockholders' equity or shareholders' equity in a corporation. Then there is the income statement which reports the accountant’s primary measure of performance of a business, revenue less expenses during the accounting period. The equation for this is Net Income = Revenue – Expense. Revenue refers to inflows from the delivery or manufacture of a product or from the rendering of a service. Expenses are outflows incurred to produce revenue.Then there is statement of retained earnings which covers a specified period of time and reports the way the net income and the distribution of dividends affect the company’s financial position during that time. Now lastly, there is statement of cash flow which divides the cash inflows and outflows into the three primary categories of cash flows in the typical business: cash flow from operating, investing and financial activities. These statements are useful to managers and employees because to make essential business decisions. They help them understand the financial position that the business is in and it formulates contractual terms between the company and other organizations. As for the employees the financial statement are used so they can discuss matters of promotion, ranking and salary hikes. In turn they are used a s bargaining agreements. These statements are useful to investors and creditors because they are able to assess the financial strength of a company. Creditors determining the credit worthiness of the organization. The terms of credit are set according to the assessment of their customers’ financial health. Investors analyzing the feasibility of investing in the company. They want to make sure they can earn a reasonable return on their investment before they commit any financial resources to the company.