Financial Statement Differentiation

Financial Statement Differentiation Paper

Financial statements are important tools in providing information about company's fiscal condition. Financial statements are used for different purposes by different categories of people or organization, such as management, creditors, investors, IRS or other government agencies. There are four types of financial statements; the income statement, balance sheet, statement of equity and statement of cash flows. The paper will explain four different types of financial statements and discuss which financial statement (s) would be of most interest to investors, creditors, and management.

Income Statement

The income statements indicate the total expenses as well as sales of a company. It is also known as the Profit & Loss (P&L) statement because it shows the components of profit and loss for a specific period of time; subtotals for gross profit, operating income and net income after taxes. The income statement is used to provide information on the revenue, expenses, and ultimately the profitability of a company. A simplified way to express the information appearing on this statement is: Revenues- Expenses= Net Income (Money-Zine, 2011),

Balance Sheet

The balance sheet shows the assets, liabilities and equity balances as of a given point in time. It will typically show the short-term and long-term liquidity and obligations of the company, as well as the leverage of the company and capital structure. The balance sheet includes the elements of the accounting equation: assets equal liabilities plus shareholders' equity (Johnson, 2012).

The statement of equity

This financial statement shows the activity with the company's owners for a specified period of time. It will also show changes in assets and liabilities that do not impact income, such as unrealized gains and losses on securities, or increases and decreases in pension liabilities. This statement shows the changes in the shareholders' equity account (Johnson, 2012).

The statement of cash flows

The statement of cash flows shows the cash inflows and outflows of a business over a given period of time. It helps in analyzing the effects of Balance Sheet and Income Statement activity on the cash by breaking out spending into 3 main categories: Operations, Financing, and Investing (Working point, 2012).

Financial Statement (s) most interested by Investors, Creditors, and Management

Investors often be most interested the income statement, because it shows how much money the company has made over a certain period of time. It also shows its calculation of earnings per share, which is important to the investor in anticipating current and future dividends. A competent investor will