Financial Statements Paper

Financial Statements Paper

Rachel Y. Davis

November 11, 2012

Professor Mc Alister

Acc/ 290

In a business, how much the business grows can be determined by numbers. Keeping an account of how many resources you start with and how many you end with can tell a story. The financial stories of a company are told in its financial statements. There are four types of financial statements. They are each necessary for a company and its owner's to determine the success of the business. The 4 different types of financial statements are balance sheets, income statements, retained earnings statement, and cash flow statements. All four of these are important in determining how financially productive a company is. In this paper we will discuss the different types of financial statements and their purpose and the benefits of these for internal and external users.

The first form of financial statement we will discuss is a balance sheet. Balance sheets illustrate what a company owes versus what the company actually owns. It can be described as comparing a company's liabilities versus its assets. Creditors often use this statement to determine if the company's assets are able to cover their debts if and when it may necessary. Income statements illustrate whether the company is profitable or not. This type of statement will compare the company's expenses or how much was spent to provide its products and services to consumers versus its revenue, which entails how much money the company earned. Income statements are beneficial for management to determine if the business did not make a profit during the specific time period, how they can make changes for the future. For investors, when investing in a company it is helpful to know how the company did financially in recent time frames prior to the decision. Income statements can assist in that matter as well. The third type of financial statement is a retained earnings statement which involves looking at how much of the company's earnings were distributed to the owners in the form of dividends compared to how much of the company's earnings were retained to be put back into the business. This statement can help investors by showing a pattern in how the company issues its dividends. The fourth and final type of financial statement is a cash flow statement. Cash flow statements identify when and how much cash was earned by the business and how this cash was actually used. Keeping track of cash in a business is very important because cash is one of the most important resources that directly affect the company's growth.

Financial statements are useful to managers and employees. The benefits of having these statements available may be