The Need for Accounting Statements

1372 Words Feb 23rd, 2018 5 Pages
These important accounting statements consist of the balance sheet, income statement, and statement of cash flows. These reports are used to evaluate a company's current financial position by company leaders, analysts, creditors and investors. It is used to measure the likelihood for success.
Balance Sheet
The balance sheet is used to see the overall picture of a company's financial position. It shows what the company has, how much it owes, and its net worth at the end of a given period. It follows the accounting formula: assets equal liabilities plus owners' equity. It shows the company's assets, and its short- and long-term debt.
Income Statement
The income statement is used to show the company earnings during a specific period of time. The initial section shows gross profit, which is revenue minus variable costs. Income from operating activities and non-operating items is added to arrive at the total net income (or loss). This shows how much income a company generates from its sales, operating activities and overall. Hence, the creditor is able to see the financial health of the company and that it would be able to repay its loan.
Cash Flows
The statement of cash flows shows the net change in a company's cash position during a period of time. High liquidity in a company is viewed as a plus to creditors and investors. Changes in cash flow are shown in several areas,…
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