Basic Finacial Statements

Basic Financial Statements

There are four financial statements that business' use to reference the financial data of a company. These statements are the balance sheet, the income sheet, the statement of retained earning and the statement of cash flows. These four statements show a variety of information that pertains to the financial situation of a company during a specific accounting period. Managers and executives must be knowledgeable about the financial statements of their company and know where their company stands financially.

The Balance Sheet

The balance sheet is a report that shows the overall financial position of a company during a specific accounting period. The balance sheet contains four main components. The name of the company and the time period the report covers is the first item on the balance sheet. The name of the company is always listed in capital letters and a unit of measure should be available in this portion. Next on the report are a listing of total assets including cash, inventory, accounts receivable and all assets the company possess. Liabilities are listed next showing accounts payable, notes payable and all liabilities the company has. Last is a list of stockholder's equity. This information gives any amount invested into the company by investors and any earnings being retained.

The Income Sheet

The income sheet is a report used to show the income of a company and whether it is operating at a profit or loss through a given period of time. The income sheet has four main components. Again, the first item is the name of the company and the time period that the report covers and units of measure for the report. The next information shows all revenues brought in to the company which is followed by all expenses. Both of these parts are broken down to detail the types of revenues and expenses. Last is the net income. This is defined as revenue minus expenses equals net income ("The Four Basic Financial Statements: An Overview", 2009).

Revenue - Expenses = Net Income

When revenue exceeds expenses a company is said to have a net profit and to the contrary if expenses exceed revenue a net loss is reported.

Statement of Retained Earnings

The Statement of Retained Earnings is a report that shows how income is retained after net income and distribution of dividends to stockholders is dispersed ("The Four Basic Financial Statements: An Overview", 2009). The statement has basic five components; company name and accounting period, previous accounting period's retained earnings, net income reported on the income statement, dividends paid, and ending retained earnings for the current accounting period. The formula