Four Financial Statements - Financial Statements 1 Running...

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Financial Statements 1 Running Head: THE FOUR FINANCIAL STATEMENTS The Four Financial Statements Jahde Goncalves University of Phoenix October 11, 2009
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Financial Statements 2 The Four Financial Statements In order for companies to assess their performance in financial terms, they have to provide their owners and shareholders with ongoing reports regarding the financial performance of their investments in a particular company. In the current business landscape, these required metrics are expressed as financial statements. These statements follow a widely accepted format and are regarded as the correct way to measure a company’s performance. Each of the financial statements is described in more detail in this paper. Income Statement . The income statement reports on the profitability of a company during a specified period. The income statement consists of revenues and expenses of the company, and ends with the retained earnings portion. If the revenue of the company is greater than the company’s expenses then the company will show a profit for that period of time. Retained Earnings Statement . Retained earnings statement is the result of the company’s income statement, that is, revenues less expenses. Every accounting period the income statement will calculate a net profit or loss. That result is used as the opening balance of the retained earnings statement. After dividends and net income have been identified, then the final balance showing is the ending balance on the statement. The statement also contains details of reasons why the organization’s retained earnings have increased or decreased for that period. Balance Sheet. The balance sheet contains all the assets, liabilities and the equity of the stockholders as at a specific date. The company’s assets must be equal to its liabilities and stockholders’ equity. Even if the company’s assets are reported as a high amount, but yet the liabilities are high, it would be useful to calculate how much assets the company would have after all of its liabilities are settled. The balance sheet tells the user of the information much
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Financial Statements 3 about the company’s financial condition at a specific point in time. Ratios are used to take information from the balance sheet to calculate various useful information, such as the company’s ability to generate revenue with its assets, etc. (Weygandt, J. J., Keiso, D. E., & Kimmel, P. D., 2005, p. 22).
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