Finicial_Statement

Financial Statements Penny Levalley July 6, 2010 University of Phoenix Instructor: Mr. Peter B. Marik Financial Statements Abstract What are Financial Statements and how do they work for us as an accountant' I will try to explain the concepts of the statements that are involved in the accounting field and how they do work for us in keep track of the flow of coming in and going out. There are other forms that are used to keep track of everything and they each have a purpose. To answer what are Financial Statements, “Financial Statements are records that provide an indication of an individual’s organization’s financial status.” (Wise Geek) There are four types of forms that are used in every business to report information in the form of a financial statement that are used periodically to report the funds that come in, go out and were they are now. One form is called the balance sheet. This form is based on the certain elements such as assets, liabilities and equity. Assets are based on either current assets or fixed assets. The current assets are classified the quick and easy way to convert into cash. Current assets include cash, accounts receivable, marketable securities, notes received, and inventory. Prepaid assets are insurance that the company pays. Fixed assets are land, buildings, and equipment. This is also things that cannot be touched but exist and have value, such as trademarks and patents. Cash itself is an asset to the company for investments and what the company makes.( Beginners’ Guide to Financial Statements, Four Financial Statements) Liabilities are amounts of money that a company owes to others. Like the money the company has borrowed from a bank or finace company to launch a new product, or the rent of the building being used, and money owed to a supplier for the materials that they had bought. Also the payroll that the company owes its employees and contractors that they use to help with fixing or repairing equipment or the building. (Four Financial Statements, Beginners’ Guide to Financial Statements) Shareholders’ equity is sometimes called capital or net worth. It is the money that would be left if a company sold all of its assets and paid off all of its liabilities. The leftover money belongs to the shareholders or the owners of the company. The balance sheet reports the resources of the company and it is useful when evaluating the ability of the company in the long term obligations. The next statement is income statement. This is a simple to describe the income and it s revenue and expenses. This if where capital gains, and losses to the company are reported showing earnings, what the shareholders would receive it the company decides to distribute all of the net earnings for the period. Most companies almost never distribute all of their earnings because they invest it back into the company. This shows if they have a net gain or a net loss. This statement we all do every year at tax time. (Four Financial Statements, Beginners’ Guide to Financial Statements) The cash flow statement analyzes a company’s cash flow from the net income or net losses. It is important to the company because they need to have enough cash on hand to pay for the expenses and to be able to purchase assets. This statement can tell the company of whether the company generated cash. Whereas the income statement lets the company knows if they made a profit. The cash flow statement shows the changes over a period of time rather than the actual amounts at a point in time. It uses and reorders the information from a company’s balance sheet and income statement. (Four Financial Statements, Beginners’ Guide to Financial Statements) The final statement is the shareholders statement. This explains the changes in retained earnings. Retained earnings appear of the balance sheet and most commonly are influenced by the income and dividends. This statement uses its information from the income statement and provides information of the balance sheet. The premium on the issuance of stock is based on the price at which the corporation actually sold the stock on the market. After words the market trading does not affect this part of the equity that the stockholders don not change when the stock prices change. (Beginners’ Guide to Financial Statements, Four Financial Statements) All of these statements are to provide the company with the good and bad revenue on what is coming and going every day. They depend on these statements to help them to figure out where and what is going out and coming in. This helps them with what product they make and sale is a good product or a bad product. If it is a bad product then they are not making any money on it and they need to delete this from their production and find something else. This is also a way to cut their losses and start all over with another product and at the end of the year they can claim the loss on the income statement. References Wise Geek, What are Finical Statements, http://www.wisegeek.com/what-are-financial-statements.htm Four Financial Statements, 1999-2000, QuickMBA.com Beginners’ Guide to Financial Statements, http://www.sec.gov/investor/pubs/begfinstmtguide.htm