Finance Statement

Identify the four basic financial statements.

The four basic financial statements a company can produce are the Income Statement, Retained Earnings, Balance Sheet and Statement of Cash Flows. All these statements are prepared for a specific period in time, usually on a monthly, quarterly or annual basis.

Describe the purpose of each of the four financial statements.

The Income Statement summarizes the fees earned, less any operating expenses to show if the company is profitable. The Income Statement uses the matching concept, which means the expenses are matched with the revenue generated in the same time period as the expenses. If the fees earned are greater than the operating expenses, then the company has generated a net profit. If the expenses are greater than the fees earned, then the company has a net loss. The Retained Earnings shows the changes in the retained earnings. The Balance Sheet displays the company's assets, liabilities and the owner's equity. The equation for the balance sheet to equal (balance) is asset = liabilities + OE. The Statement of Cash Flows consists of three sections, cash flow from operating activities, cash flows from investing activities, and cash flows from financing activities. Each of these statements uses information from each other. The Retained Earnings statement uses the net income from the Income Statement. The Balance Sheet uses the retained earnings ending balance. The Statement of Cash Flow ties out to the ending balance of Cash in the Balance Sheet.

Discuss how the financial statements would be useful to internal users, such as to managers and employees.

Financial statements are data summaries that a company prepares and publishes on a periodic basis, such as quarterly or annually. The most important accounting reports include a balance sheet, an income statement, a statement of cash flows and a statement of retained earnings. These data summaries take readers on a tour of the strategies and tactics a business uses to make money, spend it wisely, borrow when necessary, and save for future initiatives. Financial accountants use the terms "balance sheet," "statement of financial position" and "statement of financial condition" identically

The internal users of financial statements include: accounting personnel, department heads, corporate auditors, business-unit leaders and top management. These reports are relevant to each constituency because they provide specific, varying data. For accounting personnel, the overarching objective is to prepare and present accurate, complete data in accordance with norms. Department heads and segment leaders bring fresh eyes to financial issues by delving into accounting reports. For internal auditors, accounting reports shed light on the tools