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Richard Cathey ACC/561 2-6-2013 Introduction Accounting is defined as the process of recording and classifying the financial activities of a business, this mathematical process is also used as a method to record financial events. Its basis is to summarize financial activities and analyze and interpret the results from those activities. In today’s businesses accounting is used across the organization. Everyone from managers, supervisors to investors and creditors must learn and should understand this vital information if a successful company is desired. There are four different types of financial statements used in accounting. The statements of income statement, balance sheet, retained earnings statement, and statement of cash flows will be discussed in further detail throughout the paper. Balance Sheet “The balance sheet displays a company's financial point at the end of a specified date. Some interpret the balance sheet as a "snapshot" of the company's financial position at a point in time” ("Balance Sheet", 2004 - 2012). Business managers and investors can utilize a balance sheet to figure the amount assets, liabilities and stockholder equity that a business has. The balance sheet is simply a company’s assets that equals to their liabilities plus the equity the company holds. The main foundation of assets can be classified into two groups, current assets or fixed assets. Current assets are assets that can be easily liquidized into cash like accounts receivable, marketable securities, notes receivable, inventory, and insurance. Fixed assets are assets that are tangible like land, buildings, and equipment. Equity is the value of property beyond the total amount owed on its mortgages and liens. Income Statement Income statement is the second key financial statement. This statement is used for capturing statements of current business operations and provides business owners with information on revenues, income, and expenses. The income statement is a vital tool for investors because it reports share-holding positions within a company. The income statement presents certain segments of profits and loss over a period of time. It will usually show gross profit subtotals, operating income, and net income after taxes. The income statement is based from the following formula: Net Income = Revenue - Expenses. Revenue is simply cash that is generated in a company in result from a making of a product or from the exchange of a service. Expenses are referred to the outflows acquired to produce revenue. Statement of Owners’ Equity The Statement of Owners’ Equity is the third financial statement utilized in accounting. “A financial statement that lists a firm's accumulated retained earnings and net income that has been paid as dividends to stockholders in the current period. Also called retained earnings statement” ("Statement Of Owner's Equity", 2012). The Statement of Owners’ Equity utilizes information from the Income Statement and provides information to the balance sheet. The Statement of Owners’ Equity is based from the following formula: Ending Equity = Beginning Equity + Investments – Withdrawals + Income. Cash Flow Statement The Cash Flow Statement is the final key financial statement. “A cash flow statement is a financial report that describes the sources of a company's cash and how that cash was spent over a specified time period. It does not include non-cash items such as depreciation” ("Cash Flow Statement", 2012). So in simple terms, the cash flow statement is useful in calculating a company’s ability to pay its debts. The Cash Flow Statement produces an analysis of all business transactions, displaying where the company procured its cash and how it was used. The information used to produce the cash flow statement is derived from the beginning and ending balance sheets for the period and from the income statement for the period. Creditors would often be most interested in the statement of cash flows, because it shows how much cash has been generated that can be used to make mandatory debt payments. Conclusion The primary function of accounting is to record the transactions of a company and accurate accounting records help to prepare the above financial statements. These four financial statements assist in securing investors, reassuring creditors, and teaching and training management in future operations. Accounting is considered to be the backbone of the business financial world and organizations need it for their business to truly grow and flourish.  Financial accounting is the vital language of business finance and reporting financial information. The four basic types of financial statements, which are the balance sheet, income statement, statement of cash flow, and the statement of shareholder’s equity is the foundation for financial reporting. Management should theoretically be interested in all four of the basic financials statements, because each one gives a different yet equally important insight into the financial results and overall health of the business. By incorporating these key financial reports, managers, and investors can determine net worth, company holdings and overall company performance. References Balance Sheet. (2004 - 2012). Retrieved from http://www.accountingcoach.com/online-accounting-course/05Xpg01.html Statement of owner's equity. (2012). Retrieved from http://financial-dictionary.thefreedictionary.com/Statement+of+owner's+equity Cash Flow Statement. (2012). Retrieved from http://www.inc.com/encyclopedia/cashflowstatement.html