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Financial Case

Essay by   •  October 4, 2013  •  Essay  •  405 Words (2 Pages)  •  1,248 Views

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A business, individual, or any other type of entity need to keep track or keep a record that will outline their financial activities. Financial activities normally include things such as assets, expenses, liabilities, and revenues. The recording of financial activates are called the financial statement. A financial statement is seen to many people the backbone of financial accounting.

Expenses, assets, revenues and liabilities are put in to four different financial statements. The four different financial statements are balance sheet, income statement, retained earnings statement and statement of cash flows.

One of the major financial statements used by business and accountants is the balance sheet. A balance sheet is also known as a statement of financial position. The balance sheet is kind of like a snapshot of a business financial position in at a certain point in time. When someone looks at a company's balance sheet they can see the company's financial standings at a given time frame. Creditors use a balance sheet to see how much a company owes to companies or parties at a given time defined in the heading of the balance sheet. Also a creditor can see what a company owns. This information on the balance sheet is important to a banker because this information informs the banker if the company qualify or not for credit or loans. The balance sheet is a thing of interest for current investors and potential investors that look to invest in a company or already invested in to a company. A balance sheet is also a thing of interest to competitors, suppliers, company management and government agencies.

An Income Statement is a document generated monthly or annually that reports the income of a business by stating all relevant income and expenses that have been incurred to generate that income (entrepreneur, 2012). An income statement is sometime referred to as a profit and loss statement. An income statement is a report on a business ability to generate cash, it also reflects when sales are made and expenses are incurred. Things like revenue, cost of goods, capital, and expenses is where information for income statement are drawn from, combining these elements show how much a business makes or lose in a year. An income statement list financial projection by showing a business income, cost of goods, gross profit margin, operating expenses, total expenses, net profit, depreciation, earning before interest and taxes, and net profit after taxes.

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