Financial Statements Paper

Financial Statements

Financial Statements Paper

A financial statement is a report on a specific business that presents financial information in a clear manner for any interested person or company. There are four parts to a financial statement; the income statement, retained earnings statement, balance sheet, and statement of cash flows. Each piece of the financial statement has a heading with the company name, statement title and the specific time and date the statement covers.

To determine the ending balance the income statement is the first statement prepared in the financial statement. Next the retained earnings statement is prepared, so the ending balance from the retained earnings statement can be used in the balance sheet. Then the balance sheet is prepared, the cash shown on the balance sheet is used to prepare the statements of cash flow (Weygandt, Kimmel, & Kieso, 2007).

` Four Basic Financial Statements

The income statement shows a business' bottom line for a specific amount of time, it shows how much revenue a business earned in that period. The statement shows revenues, which is the increase in assets resulting from the sale of product or services during the normal course of business. The income statement will also show expenses that are the cost of assets consumed or services used while generating revenue as well as net income or net loss.

The statement of retained earning shows changes in retained earnings from net income or net loss from dividends over the stated period. The retained earnings statement explains how much a business has reinvested in itself.

"A balance sheet reports the assets, liabilities, and stockholders' equity of a business for a specific period of time" (Weygandt, Kimmel, & Kieso, 2007,). Assets that a business owns they may include physical property, equipment, inventory as well as cash. Liabilities are existing debts and obligations they may include borrowed money, rent, cost for supplies, and payroll along with numerous others, depending on the business. Stockholders' equity also can be capital, capital is what is left if a business sells all its assets and pays off all liabilities. The balance sheet in equation form is Assets = Liabilities + Stockholders' Equity, this is also referred to as the basic accounting equation (Weygandt, Kimmel, & Kieso, 2007) . A balance sheet shows a business's assets, liabilities, and shareholders' equity for a specific point.

The statement of cash flows summarizes information about cash flows ingoing and outgoing. "The statement of cash flows reports the cash effects of (1) a company's operating activities, (2) its investing activities, and (3) its financing activities" (Weygandt, Kimmel, & Kieso, 2007).