Basic Financial Statements

* A balance sheet is snapshot of the financials for that organization (with assets on the left and liabilities on the right side) for that particular date that was requested

Financial statements provide financial decision makers with varied information presented in specific formats that is easily attainable tools to evaluate financial health. Three of the necessary financial statements are the statement of financial position or the balance sheet, operating statement also called income statement, and the statement of cash flows (Finkler, Jones, and Kovner, 2013).

This Income Statement also known as the Earnings Statements or statement of operation, is one of the four Financial Statement used by accountants, business owner’s, and investors. The Income Statement provides a detailed look into how profitable a business has been over a designated period of time.

Explain the nature of balance sheets. A balance sheet is one of the major financial statements that a company prepares so that its investors and managers have visibility into the company’s financial position. The balance sheet details a company's resources and obligations. The major parts include assets, liabilities and shareholders' or owners’ equity. The balance sheet is run for

A Balance Sheet is a snapshot of an organization’s assets, liabilities, and owners’ equity at any given time. It allows the stakeholder’s to see the company's financial condition, as well as, presenting what is owned and owed. Assets are the things that are owned, and are referred to as capital. Liabilities are the amounts owed to others. In order to get an accurate picture, one must look at the whole document, and make comparisons amongst different line items.

The “financial statements are formal reports providing information on a company's financial position, cash inflows and outflows, and the results of operations” (Hermanson, p.22). There are four main components that make up a financial statement. The four parts are, balance sheet, income statements, cash flow and, statement of owner’s equity. The balance sheets role is to define the company’s assets liabilities and revenue of the business. The income statement shows the income within the company. Cash flow reviews the position of the company by cash payments and receipts. Lastly, the statement of owner’s equity shows the amount of earnings, stock and other capitals of people in the company. (Hermanson, p.34-35).

In the world of accounting, there are four basic financial statements that are necessary to track finances. The four basic financial statements used in accounting day-to-day are the balance sheet, income statement, retained earnings statement, and the statement of cash flows. All of these statements are interrelated and would not function without the other. Most importantly each of the basic four financial statements is extremely important to both internal and external users to track assets, liabilities, expenses, and revenues.

Much success in today’s business world is tied in with numbers in the form of accounting and financial statements. Being able to understand and properly read these statements is a critical component in truly knowing a business and properly assessing its overall performance. In the accounting world there are four main financial statements that are universally understood and prepared for most publically traded companies and many small and medium sized businesses: the income statement, the balance sheet, the statement of cash flows, and the statement of retained earnings (sometimes referred to as shareholders’ equity). A fundamental ability to properly

Long-term liabilities: long-term liabilities such as Note Payable (not due within one year) or Bonds Payable (not maturing within one year) will often have current values that differ from the amounts reported on the Balance Sheet.

The statement of cash flow is one of the financial statements that shareholders tend to evaluate to ensure that all transactions are properly stated in each of the three activities mentioned above; operating, investing, and financing. The statement of cash flows is also commonly overlooked by both the balance sheets and income statements numbers.

The balance sheet shows in a tabular form, the asset, liability and owners’ equity of a company, at a particular time. The assets of a company will always equal to the sum of liabilities and owners’ equity, this is called the accounting equation. i.e

Financial statements are key aspects of business operations. In fact, it is the financial statement that provides management with the information needed to make sound business decisions. Other stakeholders, like investors and creditors, use financial statements to make decisions about whether or not to invest in, loan money to, or do business with a company (Jesswein, 2013). The importance of a financial statement is dictated by the need for certain information, i.e., the overall health of a business, the creditworthiness of a business, and/or the ability of a business to make money (Jesswein, 2013). Financial statements are comprised of income statements, balance sheets, and cash flow statements (Melicher & Norton, 2014).

The first of the important financial statement documents is the income statement. According to our text (2014) the purpose of the income statement is to “report the revenues generated and expenses incurred by a firm over an accounting period, such as a quarter or a year.” Essentially, the income statement allows a general snapshot of what a company makes and spends for a specific period of time. Harold Averkamp of AccountingCoach.com (2015) sums up income statements best with, “The income statement is important because it shows the profitability of a company during the time interval specified…People pay attention to the profitability of a company for many reasons.

Financial information is essential when gauging the progress of a company or an organization. Companies engage a qualified accountant to draft financial statements that guide management in decision making. There are three types of statements that are prepared periodically to disclose the financial status of a company (Robinson et al., 2015). These include the income statement, balance sheet, and cash flow statement.

Financial statements are an important part of any company. The financial statements provide potential investors, as well as the company’s management and creditors, with useful information about the financial position of the company. The financial statements of a company comprise the income statement, the balance sheet, and the statement of cash flows. Financial statements are important, but understanding and being able to use the information presented in financial statements to make decisions is also very important.