Acc 290 Week 1

Financial Statements

Student

ACC 290

August 21, 2013

Professor

Financial Statements

        Accounting is a requirement in businesses today. These businesses range from sole proprietorship, partnership, or corporation. When dealing with any business the four financial statements are essential to internal and external users.

Four Financial Statements

        There are four financial statements that come from summarized accounting data. These four financial statements include income statements, balance sheet, retained earning statements, and statement of cash flow. Each of these statements has information required from the other.

        Income statements report “revenues and expenses for a specific period of time” (Kimmel & Weygandt, 2010). Income statements also show us the net income that is derived from the balance in revenue against expenses. If revenues exceed expenses then there will be a net income. If revenues are less than expenses then there is a net loss. Net income is necessary to verify stockholder’s equity (Kimmel & Weygandt, 2010).

        Retained earning statements will use the net income from the income statements. Retained earning statements will explain if there is a decrease or increase in the retained earnings during the period of time. Companies; however, sometimes prefer a statement of stockholder’s equity to a retained earnings statement. The retained earning statement will include an ending balance that will be necessary for the balance sheet (Kimmel & Weygandt, 2010).

        Balance sheets use a specific date. Balance sheets will use that specific date to relate assets, liabilities, and stockholder’s equity. Balance sheets have an order, first comes the assets atop the page, than it will be proceeded by liabilities and stockholder’s equity. It is important that the total assets are equal to the total liabilities and stockholder’s equity (Kimmel & Weygandt, 2010).

        Statements of cash flow can state money from operating, investing, and financing activities. Statement of cash flows will tell the user where cash comes from during the period. It will also show how the cash was used. Any change in cash balance will also be shown during the period (Kimmel & Weygandt, 2010).

Internal Users

        Internal users include but are not limited to management, human resources, finance, and marketing. All internal users can find financial statements useful. For example human resources can determine if they have enough money to offer a pay raise to any employee. Finance can also look at the data to determine if there is enough money to pay dividends to the stockholders. Managers may also want to use the statement of cash flow to determine how the company used money. The manager can see any change in cash balance through out the period. The manager can look at how the company operated, invested and financed its money and determine if this is profitable or needs to change. The manager can also use the balance sheet to review all intangible assets such as customer lists, patents, and copyrights.