Financial Statements Importance

Financial Statements Importance

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  • Date Submitted: 07/23/2012 1:32 PM
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Financial Statements Paper
February 27th, 2012
Kimberly Mansch

Financial Statements Paper

Financial reporting is an important aspect of getting a good overview of what is happening to a company finances and its stability. There are four major types of financial statements that U.S. companies provide on a regular basis. Each statement has its own purpose and usefulness. They are an important factor for managers and employees to make informed decisions on the company’s future and growth. These statements are also important to external users such as investors and creditors. This paper will explain the four types of statements and their purposes as well as how the statements are useful to internal and external users.
Different Types of Financial Statements
Income Statement
The income statement is sometimes referred to as the profit and loss statement (P&L), statement of operations, or statement of income. The income statement is important because it shows the profitability of a company during the time interval specified in its heading. The period of time that the statement covers is chosen by the business and will vary. Keep in mind that the income statement shows revenues, expenses, gains, and losses; it does not show cash receipts (money you receive) nor cash disbursements (money you pay out). (, 2012). This is the first of the four statements that should be prepared for a company.

Retained Earnings Statement
The statement of retained earnings is the second financial statement prepared. It is prepared after the income statement and before the balance sheet. So, what is the purpose of the statement of retained earnings? The statement of retained earnings explains the changes in retained earnings from net income (or loss) and from any dividends over a period of time. This means that the statement of retained earnings reports the change in retained earnings from the beginning to end of a time period, usually a year....

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