Acc 561 - Financial Statement Differentiation Paper

ACC/561 Accounting

April 15th, 2013

Tom Myers

Financial Statement Differentiation Paper

In accordance with the United States Securities and Exchange Commission (SEC) the financial statements are as easy to read as a nutrition label (US Securities and Exchange Commission, 2007). There are basic financial statements such as the income statement, which show how much revenue a company acquired during a specific period, the bottom line of company earnings or losses (Kimmel, Weygandt, & Kieso, 2009). The balance sheet, which shows the company’s assets (things that the company owns that have value), liabilities (money that the company owes) and shareholder’s equity (the capital or net worth that belong to the shareholders or owners) (Kimmel, Weygandt, & Kieso, 2009). The cash flow statement, which shows how the company manages the flow of cash in the different business activities such as operating, financing, and investing (Kimmel, Weygandt, & Kieso, 2009). Finally, the statement of equity, which shows any action with the shareholder’s or owners of the company for a specific time, this statement also shows assets and liabilities changes that do not affect the income (Kimmel, Weygandt, & Kieso, 2009).

These statements are related to each other because more than one input of the statements is needed in other statements. For example, any changes on the assets or liabilities in the balance sheet are reflected in the income statements and the cash flow provides more cash specific data on the balance sheet. This means that to have the whole picture of the financial area of a company is necessary to look at all the statements. Because of the interrelation between statements, investors, creditors, and managers have to consider and properly analyze all the statements to make wiser business decisions.

For investors or the person who contributes money to make money is important to look specifically at the income statement. In this statement, as mention above, the investor will find the earnings and losses of a company. This will allow the investor to predict future company behavior, future dividends, and trends. Another aspect an investor has to look