Financial_Statements

Financial Statement Differentiation Paper Tara Bryant ACC/561 June 17, 2013 William Montgomery Financial Statement Differentiation Paper The four basic financial statements provide a picture of a company’s financial health. The statements apply to a period of time. According to Finance Maps of World (2013), the four main financial statements are income statements, balance sheets, statements of cash flow, and statements of retained earnings. Each offers unique information related to the financial health of a company. Income statements report revenues minus the expenses incurred during a specific period. Balance sheets report the amount of assets, liabilities, and stockholders' equity during a period of time. Income statements reports revenues minus the expenses incurred during a specific period. Statements of cash flows report the cash coming in as well as being paid out in financing, operating and investing during a specific period of time. The statements of retained earnings report the way net income and the distribution of dividends affect the financial position of the company during the accounting period. The following will provide detailed information on the various financial statements and discuss the most interests each statement is to investors, creditors and managers. The income statement contains information about a company’s revenue. This statement proves to be the most useful financial statement for investors. Investors must review these statements closely to stay abreast of the financial dealings with the companies they choose invest in. The income statement shows a company’s income and expenses. Investors use income statements to review the return of funds. Investors what to see the stock values increase while holding the shares to increase the values of their investments. The income statement helps investors identify how well the company has performed from a profit standpoint. Investors can also use the informed statement of stockholders equity to see changes in outstanding shares (McIntosh, 2013). The income statement, balance sheet, and statements of cash flow are the most useful financial statements for creditors. Creditors use the three financial statements to make decisions whether to lend money to a company. Each financial statement provides different information that helps creditors make decisions regarding extending credit and evaluating the credit worthiness. The income statements show how much money the company generated during a specific period of time. Creditors use the balance sheet to gain information as to the company’s cash standing, how receivables and inventories are managed, and how the debt is leveled (Johnson, 2013). The balance sheet shows the creditor how the company’s liabilities compare to the equity (McIntosh, 2013). The statement of cash flow shows the creditor the company’s ability to manage the cash needed to meet obligations. The statement of cash flow is often considered the most importation financial statement a creditor will analyze (Johnson, 2013). The statement of cash flow provides details of the cash activity. The creditor uses this information to determine the company’s ability to pay its debts. Managers will find the income statement and the statement of cash flow of the most interests. Managers use the income statement for a variety of information. The information gained is used to help make managerial decisions within a company. Managers use the income statement to help manage certain expenses that are reported on the statement. Managers can identify whether the company has managed cash effectively enough to meet payroll needs through the statement of cash flow (McIntosh, 2013). In conclusion, the four basic financial statements include income statements, balance sheets, statements of cash flow and statements of retained earnings. Each financial statement offers valuable data related to the financial health of a company. As discussed, creditors, investors and managers use the financial statements to gain accounting data for different uses. References Finance Maps of World. (2013). Types of financial statements. Retrieved from http://finance.mapsofworld.com/financial-report/statement/type.html Johnson, J. (2013). Use of financial statements to creditors. Retrieved from http://www.ehow.com/list_7453791_uses-financial-statements-creditors.html McIntosh, A. (2013). Why are the four basic financial statements useful to managers, investors, creditors and employees' Retrieved from http://www.ehow.com/info_8356088_four- managers-investors-creditors-employees.html