Week One Discussion Questions
February 20, 2014
What are the four basic financial statements? 1) Balance Sheet; 2) Income Statement; 3) Retained Earnings Statement and 4) Cash Flow Statements.
What is the primary purpose of each of the four basic financial statements? 1) Balance Sheet, presents a picture at a point in time of what your business owns (its assets) and what it owes (liabilities); 2) Income Statement, reports the success or failure of the company’s operations for a period of time, you report its revenue and expenses; 3) Retained Earnings Statement indicates how much of previous income was distributed to you and the other owners of your business in the form of dividends, and how much was retained in the business to allow for future growth; 4) Cash Flow Statement, Shows where your business obtained cash during a period of time and how that cash was used.
In your opinion, which financial statement is the most important? Explain why. In my opinion, the Income statement is the most important financial statement because it reports the success or failure of the company’s operation, this information is vital to the investors and creditors. Investors need to be assured that their capital is growing and they have a prosperous future, when investors lose faith in the CEO, CFO or Chair, the foundation of a company can be shaken and make it fall due to lack or support and further financial backing from investors or by form of credit such as loans and reduction in buying power. Large companies or corporations cannot be on COD, they need to have the flexibility to pay their notes in a 60 to 90 day period to remain in a healthy financial status.
In your opinion, how are financial statements useful to managers and employees? How are financial statements useful to investors and creditors? Explain. In my opinion, as mentioned in my answer to the previous question, the...