September 14, 2012
This written essay will discuss the four basic financial statements used in accounting. It will describe the purpose of the four financial statements. How these statements would be useful to internal users, such as managers, and employees. How the external users, such as investors, and creditors would find these statements useful.
Four Basic Financial Statements
The four basic financial statements used in accounting are, the income statement, statement of retained earnings, balance sheet, and statement of cash flows. The income statement “reports the success or failure of the company’s operations for a period “(Kimmel, Weygandt, & Kieso, 2011, p. 11). The company’s revenues accompanied with its expenses are listed on the income statement. Statement of retained earnings “shows the amounts and causes of changes in retained earnings during the period. The period is the same as that covered by the income statement” (Kimmel, Weygandt, & Kieso, 2011, p. 13).
The balance sheet “reports assets and claims to assets at a specific point. Claims to assets are subdivided into two categories: claims of creditors and claims of owners” (Kimmel, Weygandt, & Kieso, 2011, p. 13). Statement of cash flows “primary purpose is to provide financial information about the cash receipts and cash payments of a business for a specific period. To help investors, creditors, and others in their analysis of a company’s cash position, the statement of cash flows reports the cash effects of a company’s operating, investing, and financing activities” (Kimmel, Weygandt, & Kieso, 2011, p. 15).
Managers and Employees
Financial statements to internal employees such as managers and employees are used in various ways. It enables the business managers to make sound leadership decisions. They can provide a snapshot view of the organizational financial position; financial analysis is performed with the...