Financial Statements Paper Define the purpose of accounting and identify the four basic financial statements. Explain how they are interrelated with each other, and why they are useful to managers, investors, creditors, and employees.

Topics: Generally Accepted Accounting Principles, Balance sheet, Income statement Pages: 3 (805 words) Published: April 24, 2010
Financial Statements Paper � PAGE * MERGEFORMAT �3�

Financial Statements Paper

One of the primary means of measuring success in a business is profit. Accounting provides the means to measure the various factors that affect the finances of a business by identifying, recording, and communicating economic events that affect a company (Weygandt, 2008). Because various factors can influence an organization's financial situation, the role of accounting is vital in which these three activities are conducted.

FOUR BASIC FINANCIAL STATEMENTS

The four basic financial statements are: income statement, retained earnings statement, balance sheet, and statement of cash flows. Companies typically produce different forms based upon the information needs of the end user. Marketing managers, production supervisors, finance directors, and executives use internal reports for managerial accounting purposes. External reports are used for financial accounting for company investors, creditors, tax auditors, regulatory agencies, unions, and customers who use the information to determine if the company is making a profit and able to fulfill its financial obligations (Lewis, 2009).

To organize and minimize the amount of information a user needs to determine a company's health, an organization provides a breakdown based on the type of financial statement. The income statement reflects the company's revenue and expenditures resulting in a net profit or net loss for a specified date range (Weygandt, 2008). Of the four statements, the income statement is the simplest; it merely reflects the difference between income and expenses, not other financial factors such as assets and liabilities. These items can be found on other financial statements.

The summarized retained earnings changes during a specific time are reflected on the retained earnings statement (Weygandt, 2008). Net income is one of the components necessary to compute the retained earnings that come from the income...

References: Lewis, M. (2009, August 31). Financial statements. Retrieved February 6, 2010 from http://www.associatedcontent.com/article/2107033/financial_statements.html?cat=3
Weygandt, J.J. (2008). _Financial accounting_ (6th ed.). Hoboken, NJ: John Wiley & Sons
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