Chapter 12, Problem 1Q

Compare the purposes of the income statement, the balance sheet, and the statement of cash flows.

To determine

Introduction:

Financial statements are the statements prepared to measure the financial performance of a business at a point of time. It includes income statement, balance sheet and statement of cash flows.

To compare:

The uses of balance sheet,income statementand statement of cash flow.

Answer to Problem 1Q

Income statement- It records revenue and expenses of the company.

Balance sheet- It records assets and liabilities of a company.

Cash flow statement- It records receipts and payment of cash.

Explanation of Solution

Income statement:

Income statement is prepared to track the revenues and expenses incurred during a period. It helps in measuring the operating performance of a company during a period.

The balance sheets:

The balance sheet is part of the financial statements of the company that records the assets, liabilities and owner’s equity at the end of a period. The purpose of balance sheet is to disclose the financial status of a business at a specific point of time. Balance sheet helps different users to find different information depending upon their needs.

Some of its uses are:

• It helps the investors to examine if company has enough cash to pay them as dividend.
• It helps in ratio analysis.
• It also helps in knowing about the financial leverage and liquidity of the firm.

The cash flow statements:

The cash flow statement is the statement that records the inflows and outflows of cash during a period. It provides information about the cash receipts, cash payments and net changes in cash.The purpose of cash flows statement is to know whether the company is earning enough cash from all the three activities to run its operation in the future.