Financial Statements

Financial Statements

Accounting has a broad purpose within small and large businesses; therefore a brief explanation of accounting is not straightforward. According to the American Accounting Association, accounting defined as "the method of identifying, quantifying and conveying financially viable information to allow informed judgments, and decisions by users of the information" (American Accounting Association, 2008). Accounting is being responsible. Fundamentally, accounting is function as documentation of resources owned, amounts owed to individuals and companies, and money invested. Accounting reveals the financial standing of an organization's profitability and assists management with controlling the company. Accounting assists in allowing stakeholders scrutinize activities, operations, and achievements of an organization.

The key branches of accounting are financial and management. Financial accounting coordinates important required information for external stakeholders who are not connected to the daily functions of an organization. Accounting in management offers tailored, apt and opportune financial data to managers assigned to the usual functions of the organization. These divisions support the primary accounting purpose of satisfying the informational requirements of the user. The process of accounting helps in determining the effectiveness of an organization and allows prospective shareholders or guarantors to assess the company and established decisions regarding organizational stability.

The four basic financial statements are Income statement, Balance Sheet, Cash Flow Statement, and Statement of Changes in Equity. Basically, financial statements illustrate wherever the "money is, came from, went and is currently" (United States Securities and Exchange Commission (SEC), 2009). Balance sheets, income statements, statement in changes in equity and cash flow statements are all incorporated in external disseminated information to stockholders and debtors. If an organization is a municipal or civic business, this data should be filed with the Security and Exchange Commission (SEC); therefore becoming communal knowledge.

The Income statement referred to as the Statement of Financial Performance confers revenues and expenditures, and ensuing net earnings or deficit for a period. Other names for Statement of Financial Performance in the business arena are the Profit and Loss Statement (P/L), or Statement of Financial Performance. The profit and loss statement provides justification for the reporting period. The Income Statement can be considered the most important statement in most business scenarios. This statement provides an image of the global accomplishments and profitability of an organization during a specific period. The statement can be thought as the most basic because the other financial statements are established on information