Financial Statements

Topics: Balance sheet, Financial statements, Income statement Pages: 4 (699 words) Published: May 12, 2014


Financial Statements
According to Financial Accounting: Tools for Business Decision Making textbook, accounting is the information system that classifies, registers, and communicates economic proceedings to interested users. Its main function is to provide monetary information for decision making. In this paper, I will identify the four basic financial statements and describe its purpose, how financial statements could be beneficial to internal users such as directors and employees. I will also discuss how the financial statements would be beneficial to external users such as stockholders and creditors.

In accounting, there are four basic types of financial statements. The four basic types of financial statements include: a balance sheet, income statement, retained earnings statement, and statement of cash flows. Each statement has is its own unique way of classifying, registering, and communicated economic data. Furthermore, these statements are interrelated. However, the balance sheet is the most common financial statement used in accounting. Balance sheets present a picture at a certain juncture of what a business owns and what it owes. It contains the assets, liabilities, and stockholders’ equity of an organization. Income statements show how effectively a business achieved during a period of time. Retained earnings statement specifies how much was collected in the business. Furthermore, statement of cash flows indicate sources of cash during a period of time and how the cash was spent. It reports the cash inflows and outflows resulting from the business activities. All businesses are involved in three types of activities. These three activities include: financing, investing, and operating.

Financial statements is beneficial to internal users such as directors and employees because it provides useful information. Managers necessitate financial statements to accomplish the activities of the corporation by evaluating its economic performance...

References: Kimmel, P.D., Weygandt, J.J., & Kieso, D.E. (2010). Financial accounting: Tools for business decision making (5th ed). Hoboken, NJ: John Wiley & Sons.
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