Financial Statements

Financial Statements

Accounting has been the foundation in which successful business are developed on. In today's challenging economic conditions it is required to keep an accurate account for assets and liabilities if your company is to remain afloat. Wise and ethical accounting practices have the ability to build the bottom rung for a strong and profitable company if the accounting information is correctly used. The reasons for accounting are elementary but an individual must know the purpose of accounting if they are to benefit from the advantages that the practice provides them. There are four financial statements that are prepared by companies in today's business world as a form of documenting the financial timeframe of companies. The statements that comprise accounting are the income statement, retained earnings statement, balance sheet and the statement of cash flows; all of which are analyzed in order to provide a complete understanding and picture of accounting.

Accounting exists in order to identify, record, and communicate the economic forthcomings that take place within an organization during a specific period of time. The purpose of accounting is the production of records consisting of financial events in a company in order for internal users such as management to make responsible financial decisions in regards to the business and also for external users (investors) to be well educated in regards to the businesses financial health. If the records are prepared correctly and ethically the information that is obtained can be used and put into one of the four financial statements.

Income Statement

The income statement serves to exhibit an accurate view of a company's revenues and expenses during a period of time that will eventually reveal the companies net income or net loss for that time frame. The income statement is also commonly referred to as the profit and loss statement. The financial statement is very useful to management in order to show where the company stands at that given point in time. Most companies commonly provide income statements monthly or quarterly depending on the line of business. The income statement is a useful accounting tool to see where the company falls currently in regards to income. Management and sales departments can also use the income statement in order to ensure that the company is on track with sales as well.

Retained Earnings Statement

Retained earnings statement provides and summarizes changes in retained earnings for a given period of time. Retained earnings are net income from the income statement minus dividends on a spreadsheet. Basically the retained earnings are the profits that are reinvested back into the company. For example supplies that need to be repurchased and other items or services such as maintenance that may have