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Unformatted text preview: Financial Statements 1 Financial Statements Shekitta Ferrell University of Phoenix Financial Statements Financial Statements In the accounting field today there are many different key factors that are used in the everyday process of an accountant. Many accountants use different financial statements and computer based programs that allow them to be accurate and successful in their career field. There are four major financial statements that are used in the daily routine of an accountant or people working in the accounting field. The four major financial statements used are income statements, retained earning statements, balance sheets and statement of cash flows. These four financial statements are key factors to ensuring that the proper preparation from the summarized accounting data are organized and utilized in the proper manner. Income Statement Income statements are one of the four key components of the accounting field. Income statement is also called profit and loss statement (P&L). Income statements presents the revenue and expenses and resulting net income or net loss of a company for a specific period of time. The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported. The important thing to remember about an income statement is that it represents a period of time. This contrasts with the balance sheet, which represents a single moment in time. Charitable organizations that are required to publish financial statements do not produce an income statement. Instead, they produce a similar statement that reflects funding sources compared against program expenses, administrative costs, and other operating commitments. 2 Financial Statements Retained Earning Statements Retained earning statements are another one of the four key factors to the financial statements. The Statement of Retained Earnings is also known as Equity Statement, Statement of Owner's Equity for a single proprietorship. Retained earning statements summarize the changes in retained earnings for a specific time. It breaks down changes affecting the account, such as profits or losses from operations, dividends paid, and any other items charged or credited to retained earnings. A retained earnings statement is required by Generally Accepted Accounting Principles (GAAP) whenever comparative balance sheets and income statements are presented. It may appear in the balance sheet, in a combined income statement and changes in retained earnings statement, or as a separate schedule. Therefore, the statement of retained earnings uses information from the income statement and provides information to the balance sheet. Retained earnings are part of the balance sheet, and is mostly affected by net income earned during a period of time by the company less any dividends paid to the company's owners/stockholders. The retained earnings account on the balance sheet is said to represent an "accumulation of earnings" since net profits and losses are added/subtracted from the account. Balance Sheets Balancing sheets is another key variable to the four financial statements. A balancing sheet reports the assets, liabilities and stockholders equity of a business enterprise at a specific date. A balance sheet is often described as a snapshot of a company's financial condition. Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time. A company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of assets are usually listed first and are followed by the liabilities. The 3 Financial Statements difference between the assets and the liabilities is known as equity, the net assets or the net worth of the balance sheets. Records of the values of each account or line in the balance sheet are usually maintained using a system of accounting known as the double-entry bookkeeping system company and according to the accounting equation, net worth must equal assets minus liabilities. Statement of Cash Flow The statement of cash flow is the final variable of the financial statements. The cash flow statement was previously known as the statement of changes in financial position or flow of funds statement. A statement of cash flows summarizes information concerning the cash inflows (which are receipts) and the outflows (which are payments) for a specific time. The statement shows how changes in balance sheet and income accounts affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. The cash flow statement includes only inflows and outflows of cash and cash equivalents; it excludes transactions that do not directly affect cash receipts and payments. These noncash transactions include depreciation or write-offs on bad debts to name a few. Noncash activities are usually reported in footnotes. Conclusion In conclusion, there are four major key components in financial statements. The four major financial statements used are income statements, retained earning statements, balance sheets and statement of cash flows. These four financial statements are key factors to ensuring that the proper preparation from the summarized accounting data are organized and utilized in 4 Financial Statements the proper manner. Overall, all of these four accounting variables are very useful to the accounting field and are a key part of the way in which the accounting industry operates. 5 Financial Statements References Austin, H. Roy. "Understanding cash flow--or not.(Letter to the editor)." CFO, The Magazine for Senior Financial Executives 24.5 (May 2008): 10(1). General OneFile. Gale. Apollo Library. 22 Feb. 2009 <http://find.galegroup.com/ips/start.do?prodId=IPS>. Herman, Jos. "Your personal and business balance sheets. (FINANCIAL PLANNING)." SaskBusiness 29.5 (July-August 2008): 7(1). General OneFile. Gale. Apollo Library. 22 Feb. 2009 <http://find.galegroup.com/ips/start.do?prodId=IPS>. "Financial statements." Indianapolis Business Journal 25.12 (May 31, 2004): S20 (4). General OneFile. Gale. Apollo Library. 22 Feb. 2009 <http://find.galegroup.com/ips/start.do?prodId=IPS>. 6 ...
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This note was uploaded on 03/31/2009 for the course ACCOUNTING 362 taught by Professor Hamman during the Spring '09 term at University of Phoenix.
- Spring '09