Financial Statements Paper
ACC/290-Principles of Accounting I
Financial Statements Paper
Accounting is one of the oldest professions today. “For as long as civilization has been engaging in trade, methods of record keeping, accounting, and accounting tools have been invented. Marla Matzer Rose, author of Accounting & Auditing History writes that the earliest known writing discovered by archaeologists has, when translated, been found to be records of tax accounting.” (Bellis, 2013). Accounting is a business practice that is the systematic recording, reporting, and analysis of financial transactions of a business. This financial information can be used to determine a company's financial status and help a company make sound financial decisions. This information is reported in the form of four basic financial statements: Income Statement, Balance Sheet, Retained Earnings Statement (also known as the Statement of Stockholders Equity), and Statement of Cash Flows.
To fully understand the financial health of a company one has to understand the purpose of each statement and what type of information is found in each one. The first financial statement is the income statement reports the company’s financial performance with their expenses and revenues over a specific accounting period, typically over a fiscal quarter or year. It shows if a company is making profit in a period of time. The balance statement lists the company’s assets, liabilities, and shareholder’s equity at a specific period in time. The balance sheet must follow the following formula to show an accurate picture of what a company owns, owes and, amount it has invested by shareholders: (Assets = Liabilities + Stockholders Equity).
Retained earnings statement reports the change in the retained earnings account and in dividends over a period of time. Retained earnings are the amount of income left in the company after dividends are paid. This income is reinvested in the firm for...