Financial Statement Differentiation

Financial Statement Differentiation

In the financial world there are three types of groups who companies love and fear at the same time and they are the investors, creditors, and management. These groups make or break companies in terms of the outcome in the decision being made financially. There are four different types of financial statements in which investors, creditors and management and they are balance sheet, income statements, statement of Owner's Equity, and statement of Cash Flow. After explaining each of the statements, we are going to see which statements best suits the three groups.

Balance Sheet

What a Balance sheets does is it provides information about any company with their assets, liabilities and equity that is based on the accounting model as

* Assets=Liabilities + Equity

Assets

According the U.S. Securities and Exchange Commission "Assets are things that a company owns that have value. This typically means they can either be sold or used by the company to make products or provide services that can be sold" (U.s. Securities And Exchange Commission 2012). These assets for example equipment, inventory, vehicles, and plants, yes plants can be consider assets or as called physical assets. Other things that can be consider assets that don't have to be physical such as trademark and patents.

Liabilities

Liabilities are how much money the company owes to others. The company can owe money to banks or paying bills such as rent on a use of a building. Other types of liabilities can be for materials, payroll, government taxes, and even environmental cleanup.

Equity

Equity or net worth is money left over after the company sold all of their assets and has paid off all of the liabilities that came alone with it. The money that is left over goes to either the share holders or to the owner or owners of the company.

Income Statement

Kimmel, Weygandt, and Koeso authors of Accounting: tools for business decision making stated that "To show how successfully your business performed during a period of time,

you report its revenues and expenses in an income statement. This reports the success or failure of the company's operations for a period of time" (Kimmel, Weygandt, Koeso 2009 pg 12). In terms of how to calculate income statement or net income for short there is two ways in doing so

* Net Income = Revenue - Expenses- this is the simplest way to find out the net income.

* Net Income = Revenue - Expenses + Gains - Losses-more complicated in terms of accessing capital gains and losses and what not.

Statement of Owners'