"Four Basic Financial Statements". Provide An Explanation Of The Four Basic Financial Statements Used In Business.

913 words - 4 pages

IntroductionIn any business, one of the primary means of achieving success and maintaining it; is to turn a profit or make money. However, it is not merely enough to sell a product or service at a higher cost than it takes to produce the product or provide the service. Because of the various factors that can impact the finances of a business, it is necessary to be able to identify, record, and communicate economic events that affect the business. (Weygandt, Kimmel and Kieso, 2008. pg. 4). That is why accounting is so vital, as it is the means in which these three activities are conducted.Four Basic Financial StatementsThere are different forms of accounting, based upon who the end user of the information will be. For internal users of the information, such as marketing managers, production supervisors, finance directors and company officers the information is presented in internal reports, which is managerial accounting. For external users, such as investors, creditors, taxing authorities, regulatory agencies, customers and labor unions the information required has to allow them to see if the company is making a profit, is able to meet its obligations, etc. This type of information is presented in external reports, which is financial accounting. (Weygandt, Kimmel and Kieso, 2008. pg. 6-7).To minimize the amount of information an external user would have to sift through to get a general idea of a company's financial health, companies typically produce four different types of basic financial statements.The four basic financial statements are:1) Income Statement - "Presents the revenues and expenses and resulting net income or net loss of a company for a specific period of time." (Weygandt, Kimmel and Kieso, 2008. pg.21). This is probably the simplest of the four statements as it is merely a representation of income versus expenses. It does not reflect investments or dividends and it does not represent other financial factors such as assets and liabilities. These items will be further represented in one of the other financial statements.2) Retained Earnings Statement - "Summarizes the changes in retained earnings for a specific period of time." (Weygandt, Kimmel and Kieso, 2008. pg. 21). One of the inputs necessary to compute the Retained Earnings Statement is Net Income, which is derived from the Income Statement. Previous retained earnings will be added to the net income and dividends subtracted from the total, which will reflect current retained earnings. If dividends exceed the sub-total of previous retained earnings and net income, it will reflect a net loss for the company. While if the sub-total of previous retained earnings and net income exceeds the dividends, it will reflect a net profit for the company.3) Balance Sheet - "Reports the assets, liabilities, and stockholders' equity of a company at a specific date." (Weygandt, Kimmel...

Find Another Essay On "Four Basic Financial Statements". Provide an explanation of the four basic financial statements used in business.

Financial Statements Essay

638 words - 3 pages as, "information system that identifies, records, and communicates economic events in an organization". (Kimmel, 2005) Accounting is needed in order to collect and record the economic events within a company to continuously evaluate the company's financial status. There are four financial statements that summarize the accounting data recorded. These four statements are the Income statement, Retained Earnings statement, Balance Sheet, and the

Financial Statements Essay

1049 words - 4 pages manipulation should not be tolerated. The purpose of financial statements Financial statements are the primary instruments used in assessing the performance of a business and its managers (Gibson , 2013). In order to make well informed decisions, interested parties must be able to assume that a company’s financial statements are an accurate representation of its performance. Financial statements are used by customers, employees, governments, investors

Financial Statements

514 words - 2 pages A Balance Sheet is to show at a point in time of what the business owns (its assets) and what it owes (its liabilities). An Income Statement is to show how successful the business performed during a period of time. The income statement would show the revenues and expenses and the profit. Retained Earnings Statement is to show how the previous income was distributed to the owners of the business in the form of dividends, and how much was retained

Financial Statements - 1481 words

1481 words - 6 pages cancer.The four types of financial statements utilized by both Pepsi and Coca Cola to report their respective financial status are the balance sheet, the income statement, the statement of cash flows, and the statement of owner equity.Balance SheetAccording to tutor2u.com a balance sheet is "a statement of the total assets and liabilities of an organization at a particular date - usually the last date of an accounting period." In addition, "the

The Purpose of Financial Statements

1835 words - 7 pages The Purpose of Financial Statements The financial statements of a business are used to provide information about the status of the business, set performance targets and impose restrictions on the managers of the firm as well as provide an easier method for financial planning. The financial statements consist of the Profit and Loss Account, Balance Sheet and the Cash Flow Statement. There are

Analysis of Financial Statements

2370 words - 9 pages , financial ratios are used to summarize this information gathered in a company's financial statements. These figures are calculated to show how much of a profit companies make in a given year or how much debt the company incurs. There are four types of ratios; Leverage ratios, Liquidity ratios, Efficiency or turnover ratios, and Profitability ratios.The Profitability ratios are used to measure the company's return on its investments. Some examples of

Review of Financial Statements

1840 words - 7 pages Financial statements are essential accounting tools which include balance sheets, cash flow statements, and income statements that provide information on a company's past and present financial history. Information on financial statements can be used by any number of public and private entities to determine if an organization's financial status is healthy. Burger King and McDonald's are two organizations that use financial statements in

Review of Financial Statements Paper

1330 words - 5 pages I have selected two of America's most established and well known companies ever, Coca-Cola and Pepsi, on which to conduct a review of financial statements. These two companies combined have been in business 230 years. Coca-Cola and Pepsi have come to dominate the global market with their products. They both have production plants in every major country on this planet. This paper will provide a brief overview of each company, which includes when

Analysis of Financial Statements Simulation

979 words - 4 pages candidates for the joint venture and the second is what questions should be asked when deciding how to weight financial ratios when evaluating the financial health of an entity.The relative importance of the five categories of financial ratiosThe simulation presents itself with Panorama Inc., America's second largest manufacturer of computers and peripherals. Since the company's inception in 1979, Panorama's key differentiator is product

Review of Financial Statements Paper

1855 words - 7 pages Ernst & Young LLP accounting firm to perform the audits on the financial statements. A little background on Ernst & Young LLP would show that they are one of the largest professional services firms in the world, and one of the Big Four auditors, along with Pricewaterhouse Coopers, Deloitte Touche Tohmatsu and KPMG. According to Forbes Magazine, as of the year 2007 it is also the seventh largest private companies in the United States

Analysis of Insurance Financial Statements

1806 words - 7 pages price competition, which are the major causes for the current Hard Market in the Insurance Industry.Final Commentary Different sets of accounting principles are used for financial and insurance regulators. Insurance Financial Statements are much more conservative than most other Financial Statements, meaning that they don't make the company look any stronger than it is. This is partly because of heavy regulation, but also because of

Similar Essays

Four Basic Financial Statements Essay

804 words - 3 pages income statement, tell an organization what is good and bad about itself. One other thing this statement can show is the ability an organization has in paying back its debts and investment in the future growth of the business.All of these four basic financial statements are used by managers, employees, creditors, business owners, and investors. A balance sheet can be used to see the financial strong points of an organization and can help in

Financial Statements Essay

1352 words - 5 pages financial statements prepared on a cash basis of accounting may distort the portrayal of financial position and operating results of a business.Nowadays, there are two forms of accounting used by business, cash basis of accounting and accrual basis of accounting. The cash basis method of accounting is based on real-time cash flow. (Website: American Express Company, 2000, p1) In such method, you report an expense when it is paid, and record income

Financial Statements Essay 1142 Words

1142 words - 5 pages This week's team assignment was drawn out for the learning team to discover the net income, total assets, explain the amounts of monies used for properties and equipment, as well as stock options used. In addition, the assignment asked that it be detailed in which components led to these answers and which financial statement was the most valuable in the team's review. We will detail these questions and provide additional information so that the

Financial Statements Essay

1971 words - 8 pages through its accounting practices. The four basic financial statements give an overview of the information with the intention of management, oversight, auditing, compliance, and reporting to interested internal and external parties. Although the information contained in the four statements is not all-inclusive, it is enough to grasp the financial stability of a company.8ReferencesBazley, M & Hancock, P (2010). Contemporary Accounting 7th