Basic Financial Statements

Basic Financial Statements

Krystal Gruenewald

ACC/290

January 28, 2013

Jon Mohr

Basic Financial Statements

There are four basic financial statements used by corporations, which are income statement, retained earnings statement, balance sheet, and statement of cash flows. The income statement sheet shows whether a company's operation is failing or succeeding within period of time by listing the revenues followed by its expenses. Next the retained earnings statement is a statement used by companies to show the net income retained in the corporation. Third, there is the balance sheet that reports assets and claims to assets at a particular point in time. Finally, there is the statement of cash flows that is to provide information about the cash receipts and cash payments of a business for a specific period of time (Kimmel, 2009).  Internal users and external users use the financial statements.

Internal users include everyone from the owner down to the employees of the company. Financial statements can be used to help owners and managers make decisions for the company and to report to the company's stockholders as part of their Annual Report. Employees use the financial statements to make collective bargaining agreements with the management, which is used to discuss matters of promotion, rankings, and salary hike. (Users of Financial Statements, 2004) Internal users also use to answer questions like:

• Is cash sufficient to pay dividends to stockholders?
• Can we afford to give a company's employees pay raises this year?
• Which product is the most profitable? (Kimmel, 2009)

Investors, vendors, government, and financial institutions are all external users that use a company's financial statement. Institutional investors use the information from the financial statement to decide whether they should sell, buy, or hold on to stock. It's important to the vendors so they can decide what products are selling within a company. The Internal Revenue Service (IRS) use a company's financial statement to make sure that the company is complies with the tax laws. Financial institutions decide whether to help a company by their financial statements (Users of Financial Statements, 2004).

Bibliography

Kimmel, P. D. (2009). Financial Accounting: Tools for Business Decision Making, 5e. John Wiley and Sons.

Users of Financial Statements. (2004). Retrieved January 2013, from Finance Maps of World: http://finance.mapsofworld.com/financial-report/statement/users.html