Financial

Financial Statements Axia College University of Phoenix This report will explain various financial pieces that a company would utilize in order to make intelligent successful financials decisions. We will explore assets, balance sheets as well as other financial statements, liabilities and shareholders equity and how each component is used individually and comparatively. Finally, we will determine what types of decisions a company might use this information for. A company might purchase assets in order to increase its value. An asset is a company owned resource that has expected economic value. Assets can be short or long-term. Long-term assets are called fixed assets and short-term assets are called currents assets. The difference is that current assets may be used in a year’s time and fixed assets are progressive and continue generating cash flow for more than a year. Fixed assets could be real estate or a company’s equipment. A company’s balance sheet is an extremely important set of financial information. A company’s balance sheet reports how much the company owns and how much the company owes in a particular period. A company has expenses and may have to borrow money which would be considered a company’s liabilities. A company may have to get it from shareholders equity. An income statement reports the company’s revenue what the amount of profit that the company has been able to generate within a particular timeframe. A cash flow statement illustrates cash outflow and inflow over a specific time. Together the balance sheet, cash flow statement and income statement give a total overview of the company’s financials. A company uses comparative statements to determine the company’s financial situation at the end of an accounting period. (Introduction to Financial Statements, 2005) Liabilities are considered anything that a company owes financially regarding legal debts or other financial obligations that have occurred over the course of the company’s operations. A company’s balance sheet records the company’s liabilities which include but may not be limited to accounts payable, loans, and any mortgages. Shareholders equity is the company’s complete assets minus the company’s total liabilities. Shareholders equity equate to the amount a company is financed using preferred and common shares in the firm. Money that was initially used to invest in the company is a source of shareholders equity as are retained earnings or net income that the company has made throughout its time being operational. A company would analyze all the available information in its financial reports to determine various financial decisions, for example, whether the company was able to sustain itself for the long-term, if they were able to expand or purchase more assets. A company uses its financial statements to decide whether or not it would be eligible to a loan if necessary or even if it was already carrying too many liabilities already. Since creditors also analyze the company’s financial statement to decide whether or not the company is loan worthy the company could determine whether or not it required a guarantor or legal representative to sign the loan on its behalf. As mentioned earlier in this report a company’s financial statements are an extremely important piece of information. A company would not be able to make sound financial decisions without reviewing the data that a balance sheet, cash flow and income statement provide. References: Chapter One, Introduction to Financial Statements (2005). Retrieved on April 26, 2009 from Axia Resource Materials: ACC/220 SURVEY OF ACCOUNTING: THE MAZE OF NUMBERS (AXIA).