Financial Statements Of A Business Entity

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A Glimpse at the Financial Statements of a Business Entity Financial statements are important tools that are used by owners, managers, and investors of a company in order to analyze profitability as well as where money is being spent and where it is coming from. In order to explain further about how the financial statements are utilized, I have provided a brief breakdown of the income statement, the balance sheet, and the statement of cash flows. Income Statement The main purpose of the income statement is to provide information to the investors, owners, and managers of the business about the revenue and expenses produced by the company for a period of time. The statement is usually issued quarterly or yearly depending on the business (Melicher & Norton, 2013). The major expenses that are found on an income statement are: cost of goods sold, operating expenses, taxes, and miscellaneous expenses. Cost of Goods Sold Cost of goods sold consists of any expenses that occur from the direct production of the goods or services. These expenses can be further broken down to include the cost of material, labor, and overhead. Material is just that, anything that makes up the product. The labor consists of the man-power used in the production of the goods or services. Overhead can included things like electricity, rent, utilities, supplies, etc. Operating Expenses Operating Expenses are expenses that are not directly related to production of the goods or services. Sales and
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