Premium Essay

Financial Statement Differentiation

In:

Submitted By SharSJ25
Words 882
Pages 4
Financial Statement Differentiation

Financial Statement Differentiation
In our text Accounting: Tools for business decision making authors Kimmel, Weygandt, and Kieso (2009) stated that “Success in business requires making countless decisions, and decisions require financial information.” This reflects the perfect definition for financial statements and what their sole purpose is. Financial Statements summarize the financial condition or health of a company. For this paper, one will look at each of the four financial statements and discuss the information they provide. Then the internal and external users of financial statements will be addressed along with the main interests of each of these users.
Income Statement An income statement is used to report whether a company is making a profit or loss. This is the determining factor in a company being successful or not. The income statement reports the company’s revenues and expenses over a specific period of time. The format of the income statement begins with the time period listed, and then the revenues and expenses are listed. The net income for the company is then determined by subtracting the expenses from the revenues. (Kimmel, Weygandt, & Kieso, 2009)
Balance Sheet The balance sheet illustrates the company’s assets and liabilities. That is, what the company owns and owes. It also shows the stockholders’ equity. The balance sheet, as its name suggests must have the same balance for assets and liabilities. The basis accounting equation (Assets = Liabilities + Stockholders’ Equity) is derived from the category relationships in this statement.

Statement of Retained Earnings
According to the ICSC Dictionary of Shopping Center Term (2005), the statement of retained earnings “Reconciles the balance of retained earnings from the beginning of the year to the end”. This statement shoes the amounts

Similar Documents

Premium Essay

Financial Statement Differentiation

...Financial Statement Differentiation ACC/561 Financial Statement Differentiation There are basically four different types of financial statements. They consist of balance sheets, income statements, statements of cash flows, and statements of stockholders’ equity. Different aspects of a company’s accounting information are presented in each of these statements for use by investors, managers, creditors, etc. Assets, liabilities, revenues, and expenses are all represented on one or more of these statements (Kimmel, 2009). Balance Sheets Balance sheets are one of the most commonly accessed financial statements. They provide a snapshot of a company’s assets, liabilities, and stockholders’ equities at any given point in time. These three items make up the basic accounting equation which states that the sum of the liabilities and stockholders’ equity must always equal the total assets of a given company. This information gives both creditors and investors an idea of what the company owns and owes. Income Statements The income statement usually encompasses a specific period of time, such as a year or a fraction of a year. It demonstrates how successful a company was over that period by providing information on the company’s revenues and expenses (“Beginners’ Guide to Financial Statements”, 2007). The bottom line on this statement is the net profit, or loss, of the given company. This is of particular interest to investors. By looking at the past performance of a company...

Words: 610 - Pages: 3

Premium Essay

Financial Statement Differentiation

...Financial Statement Differentiation ACC/561: Accounting March 2013 Financial Statement Differentiation It is difficult to envision investors, creditors, and management making informed decisions sans accurate financial information. Consequently, organizations should use financial statements to communicate their financial stability, cash flows, and operational results with external and internal users. The purpose of this paper is to explain information contained in each of the four financial statements and discuss reasons each statement is of interest to investors, creditors, and management. Literature Review Literature review identified four primary financial statements the accounting process creates. They are the income, retained earnings, balance sheet, and cash flow statement (Kimmel, Weygandt, & Kieso, 2009). According to Albrecht, Stice, Stice, and Swain, (2008), each statement has a unique purpose and interrelates with the others. To decipher a company’s complete financial picture, stakeholders should understand how each statement influences the next (Financial Accounting, 2011). The Four Types of Financial Statements Generally accepted accounting principles (GAAP) require publicly held organizations show their earnings, owner investments - distributions to owners, financial position, and cash flow for a given period (Financial Accounting, 2011). The financial statement that satisfies each of the aforementioned (in order) is the income statement, retained...

Words: 871 - Pages: 4

Premium Essay

Financial Statement Differentiation

...Financial Statement Differentiation ACC/561 Financial Statement Differentiation There are four different kinds of financial statements. These include the income statement, the statement of cash flow, the balance sheet, and the retained earnings statement. Each statement has a different focus and are used by investors, managers, and creditors to help make decisions about a business. Knowing which statements need to be used and when will help make any business more aware of where their funds are going. The Income Statement “An income statement is a financial statement that measures a company’s financial performance” (Investopia, 2015). The income statement will usually cover a precise time period. It reports both the success and failures f the company during that period that is covered. An income statement lists the company’s expenses and their revenues, which allows for the net income to be determined by subtracting the expenses from the revenues (Kimmel, Weygandt, & Kieso, 2011). Income statements are often used by creditors to determine if a company can afford to repay a loan. Income statements are an important part of business accounting, and show the profit and loss for the company. The Statement of Cash Flows A statement of cash flows is a quarterly report that all publicly traded companies are required to disclose to the SEC, Securities and Exchange Commission, and to the public (Investopia, 2015). The sheet provides information regarding any cash inflows the...

Words: 641 - Pages: 3

Premium Essay

Financial Statement Differentiation

...Financial Statement Differentiation Businesses are required to maintain records that account for financial transactions completed by the company. The purpose for financial statements is to “provide details about a company’s performance and well-being over a given period of time. They are the equivalent of scorecards that break down a business’s financial wins and losses during the specified period.” Although there are numerous types of statements that would have financial information reported, there are, there are four standard types of records that are used. The purpose for this paper is to differentiate between the four financial statements and determine which statements would be beneficial to investors, creditors, and the organization. Balance Sheet A balance sheet consists of three parts and provides a simple financial snapshot from a specific point in time. The balance sheet uses Assets = Liabilities + Stockholder’s Equity as the equation for the balance sheet. The assets are on one side with liabilities and stockholder’s investment on the other. This should show a balance that would be useful for investors. “Investors use balance sheets to evaluate a company's financial health. The balance sheet provides a look at a firm's assets and liabilities, enabling investors to make a determination regarding the firm's health and compare the results against the firm's competitors.” ("Off-Balance-Sheet Entities: An Introduction", n.d., para. 2). Income Statement The income...

Words: 725 - Pages: 3

Premium Essay

Financial Statement Differentiation

...organizations complete various financial statements that will inform management, creditors, and investors of its financial status. Corporations complete financial statements, such as the income statements, balance sheets, retained earnings statement, and statement of cash flows on a monthly or annually basis. Financial statements must indicate true, accurate, and precise information according to the rules and regulations mandated by the United States of America government. Management, creditors, and investors review the financial statements that will provide him or her with precise information to answer his or her questions. Income Statement When businesses and organizations want to identify how the company is operating for a certain period of time the business or organization will complete an income statement. According to Kimmel (2009), the income statement identifies a business or organization’s revenues and expenses; the expenses are subtracted from the revenues, which determine the company net income or net loss (p. 12). A business or organization revenue is the income the company made through sales or services rendered. The company expenses are the costs to produce and sell a product or service (Kimmel, p. 11, 2009). The income statement is used to determine if a business or organization is successful or unsuccessful. In addition, the income statement would be of most interest to investors, creditors, and management. The income statement would be of most interest to investors...

Words: 887 - Pages: 4

Premium Essay

Financial Statement Differentiation Paper

...Financial Statement Differentiation Paper Jason Raines ACC/561 January 9, 2012 Cathleen Davis Financial Statement Differentiation Paper There are four basic financial statements that help business keep track of what is coming and going on a daily basis. “They are: (1) balance sheets; (2) income statements; (3) cash flow statements; and (4) statements of shareholders’ equity” (Beginner’s, 2007). Each one of these statements has it own unique way of showing where the company’s money came from, where went, and where it is now. This is why it is important to have better understanding how each statement can help keep accurate financial records for the business. Balance Sheet A balance sheet is really an easy concept to understand because when it comes to the balance sheet company’s use them to balance out there financials. This financial statement shows a company’s “assets, liabilities, and share holders equity at certain point of time in a business cycle” (Balance Sheet, 2011). There is a simple equation that can describe the balance sheet which is Assets = Liabilities + Shareholder’s Equity, using this equation company’s should be able to keep accurate records of their finances. Although investors, creditors, and management all look at the balance sheet for reassurance it would seem that the creditors would more interested in the balance sheet because creditors can look at the balance sheet and make a determination on whether or not they are going...

Words: 1025 - Pages: 5

Premium Essay

Financial Statement Differentiation Paper

...Financial Statement Differentiation Paper Nancy Negron ACC/561 Accounting April 15th, 2013 Tom Myers Financial Statement Differentiation Paper In accordance with the United States Securities and Exchange Commission (SEC) the financial statements are as easy to read as a nutrition label (US Securities and Exchange Commission, 2007). There are basic financial statements such as the income statement, which show how much revenue a company acquired during a specific period, the bottom line of company earnings or losses (Kimmel, Weygandt, & Kieso, 2009). The balance sheet, which shows the company’s assets (things that the company owns that have value), liabilities (money that the company owes) and shareholder’s equity (the capital or net worth that belong to the shareholders or owners) (Kimmel, Weygandt, & Kieso, 2009). The cash flow statement, which shows how the company manages the flow of cash in the different business activities such as operating, financing, and investing (Kimmel, Weygandt, & Kieso, 2009). Finally, the statement of equity, which shows any action with the shareholder’s or owners of the company for a specific time, this statement also shows assets and liabilities changes that do not affect the income (Kimmel, Weygandt, & Kieso, 2009). These statements are related to each other because more than one input of the statements is needed in other statements. For example, any changes on the assets or liabilities in the balance sheet are reflected...

Words: 800 - Pages: 4

Premium Essay

Financial Statement Differentiation Paper

...561 Financial Statement Differentiation Paper Financial statements provide crucial information to management, investors, and creditors. These statements include four documented forms cash flow statement, balance sheet, retained earnings, and income statement. The information contained in the reports provides a detailed picture to the condition of any business. A business evaluation containing all four documents is essential to form an accurate forecast in past and future objectives. Each document allows creditors, investors, and managers’ ability to further understand the financial workings of an individual company. Balance Sheet A balance sheet shows the dollar value at a specific time of the assets and liabilities of the company. The formula for this is Assets = Liabilities + Stockholders Equity. Assets are any resource in which a company posses such as cash, equipment and property. Liabilities are shown as amounts or payables owed to the owner or creditor. Balance sheets for most companies are available to the public. By publishing this report lenders and investors can review the data and decide whether the company is worth the investment. Both investors and lenders can also determine if the company has the ability to repay a debt (Kimmel et al., 2009). Income Statement The income statement shows if a company has reported a profit or loss for a specific period. This statement is also referred to as a profit and loss statement. The items...

Words: 594 - Pages: 3

Premium Essay

Financial Statement Differentiation Paper

...Financial Statement Differentiation Paper Set Jardine Acc 561 Financial Statement Differentiation Paper Financial statements are prepared by every public company according to the generally accepted accounting principles adapted by the United States to ensure accounting accuracy within the investment community. These accounting standards are used to prepare the balance statement, the income statement, the shareholders’ equity statement, and the cash flow statement. This paper will discuss the differences between each of these statements. Balance Sheet Shareholders’ equity, liabilities, and assets are items listed on the balance sheet. Assets are the items that the company owns that have value. Liabilities are debts that the company is obligated to pay. Shareholders’ equity is the net worth of the company. The balance sheet is an overview of the company’s accounts during the financial period depicted on the statement. Income Statement The income statement is the company’s statement of profit and loss. This statement will show the company where money was either gained or lost during operations. There are several versions of the income statement, depending on the size of the company. Generally, though, the sections in the income statement consist of revenue, cost of goods sold, operating income minus expenses, pretax income, extraordinary items, income available for common stockholders, adjusted net income, and earnings per share. Cash Flow Statement ...

Words: 704 - Pages: 3

Premium Essay

Financial Statement Differentiation Paper

...Financial Statement Differentiation Paper Name ACC/561 Date Instructor Financial Statement Differentiation Paper Financial statements arrange financial information into statements that prove to be the financial accounting backbone. The income statement, statement of cash flows, retained earnings statement, and balance sheet arrange the expenses, liabilities, revenues, and assets of a company into formats that provide a clear view of different areas of interest. These areas are of interest to the investors, creditors, and management of the company (Kimmel, 2011). All four of these financial statements prove to be of interest to all three financial statement users in multiple ways. The Four Financial Statements Each of these four financial statements provide insight necessary to keep a company fully functional and profitable. An income statement provides a clear view of how successful the performance of a company was within a period of time through reporting the revenues and expenses within that period. The net income, which is determined through use of the income statement, proves to be valuable information in many different areas of financial interest. The statement of cash flows presents where cash was obtained within a time period and how it was used within the company during that time. This shows how the investing, financing, and operating activities of the company effects the amount of cash at the period’s end. To determine the amount of previous income...

Words: 852 - Pages: 4

Premium Essay

Financial Statements Differentiation Paper

...Financial Statements Differentiation Paper There are four different types of financial statements discussed in week which are comprehensive income statements, balance sheets, reconciliation statement and cash flow statement. There is significant differences between the financial statements and will define them. Also will discuss what individual financial statements would interest investors, creditors, and management. Financial statements help us comprehend the past and forthcoming financial situation of a company. According to Sherlock and Reuvid, a balance sheet indicates assets, liabilities and equity balances of a company at any given point in time. The balance sheet will show short and long term liquidity and commitments of the company, also the control of the corporation and capital organization. The income statement indicates the elements of earnings and loss of any specified time frame. Also it will usually display subtotals for gross revenue, net income after taxes, and operating income. The reconciliation statement, “Supplies investors and analysts more information for predicting future cash flows” (McClain). It also displays any changes in depreciation of equipment, acquisitions of property, and other changes in corporate operational resources and liabilities. The cash flow statement indicates the cash influxes and losses of the corporation at any specified time frame. There are two approaches for formulating the cash flow statement. The direct process displays...

Words: 592 - Pages: 3

Premium Essay

Financial Statements

...Financial Statement Differentiation Sha'ron Burton ACC/561 April 3, 2012 Greg MacNaughton Financial Statement Differentiation When putting together a balance sheet, retained earnings, income statement, and cash flow statement one has just created a financial statement. These four documents together give everyone involved in a business an accurate and solid outlook on the business. This statement gives creditors, investors, and management a good look at what they are getting in to. It is essential that all four pieces are included in the statement, or it will not be accurate. They depend on one another. This paper will look at what financial statements are of interest to management, creditors, and investors. Balance Sheet Investors and management would be interested in a balance sheet. According to "Businessdictionary.com" (2012), " A balance sheet states what assets the entity owns, how it paid for them, what it owes (it’s liabilities), and what is the amount left after satisfying the liabilities” (Balance Sheet). It also includes a company’s assets, and shareholders’ equity. A company can evaluate these items and gauge what the company owes and owns. The equation for the balance sheet is assets = liabilities + shareholders’ equity. The balance sheet is a long-term view of how the company is doing. Retained Earnings Retained earnings is comes into play after the income statement, it should be done before the balance sheet. It covers...

Words: 547 - Pages: 3

Premium Essay

Acc561 Financial Statements Paper

...Financial Statement Differentiation Joshua Tabaka University of Phoenix ACC/561 WH12MBA06 March 20, 2013 Instructor: Norris Dorsey Workshop 1 Financial Statement Differentiation There are four major types of financial statements and they include the balance sheet, income statement, statement of equity and statement of cash flows. The balance sheet shows the assets, liabilities and equity balances as of a given point in time. It will typically show the short-term and long-term liquidity and obligations of the company, as well as the leverage of the company and capital structure (Investopedia, 2013) . The income statement shows the components of profit and loss for a certain accounting period. It will typically also show subtotals for gross profit, operating income, and net income after taxes. Normally this is shown over a quarter or fiscal year (Investopedia, 2013). The statement of owners’ equity shows the activity with the company’s owners for a specified period of time. It will also show changes in assets and liabilities that do not impact income, such as unrealized gains and losses on securities (accounting-basics-for-students.com, 2013) The statement of cash flows shows the cash inflows and outflows of the company for a specified period of time. All companies are required to provide this report to the SEC quarterly (Investopedia, 2013). The first of two ways to prepare a statement of cash flows if the direct method, which shows the actual inflows...

Words: 519 - Pages: 3

Premium Essay

Financial Data Analysis for Patton Fuller Community Hospital

...Financial Data Analysis for Patton Fuller Community Hospital Bobbie Griffin HCS/577 April 16, 2012 Crystal Chilman University of Phoenix Patton Fuller Community Hospital This paper will analyze the for-profit organization, Patton Fuller Community Hospital, financial data and determine what happened to with the $1 million that Abigail left to the hospital after she passed.  Patton Fuller is very dedicated into providing excellent services to their patients. This community hospital is owned by a group of practicing physicians with the aim of providing quality care to around 600 plus patients in a complete service setting.  Finkler and Ward mentioned that all health care organizationought to demonstrate signs of revenue in order to obtain newer technology and be able to be compete with other organizations (Finkler & Ward, 2006). The community hospital provided a financial report also known as financial audit.   Gapenski stated that a monetary report show the monetary account of an organization from beginning to end, a cash flow statement, income statement and the balance sheet (Gapenski, 2008).  This statement identifies the financial stability of the organization and includes but not limited to the cash flow statements, income statement, and the balance sheet.  The organization’s financial reports show a considerable differentiation between 2008 and 2009. Based on the examination performed for Patton Fuller Community Hospital...

Words: 692 - Pages: 3

Premium Essay

Financial Statments

...Financial Statement Differentiation – Individual Paper Mary Lou Gasca Accounting ACCT/561 March 18, 2013 Moises Rodriguez Financial Statement Differentiation – Individual Paper Financial statements are tools that people use to evaluate the potential of a business’ organization. There are four types of financial statements for two main types of users (internal and external), which is beneficial, depending on the type of business (sole proprietorship, partnership, and corporation). Regardless of the type of business, financial statements assist in making business decisions for internal and external users. Internal users are the business managers, owners, and an organization’s personnel who contribute to the operations of the business. External users are creditors, investors, and individuals of interest for the business (customers, for example). Financial statements also assist in identifying, depending on the nature of the business, an organization’s resources, profits, debts, business creditability, and financial health of business activities. The four types financial statements, which report financing, investing, and operating...

Words: 760 - Pages: 4