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Financial Statements

In: Business and Management

Submitted By Amy10
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Financial Statements
The four basic financial statements are balance sheet, income statement, earnings statement, and statement of cash flows. A balance sheet is used to show an illustration at a certain point in time of a business’s assets, what the business owns, and a business’s liabilities, what the business owes. To report your business’s revenues and expenses, an income statement is used to represent how profitably your business functioned during a certain period of time. A retained earnings statement is used to represent how much of past earnings were dispersed among you and all the other owners within your business in the form of dividends, and how much of the money was maintained in the business for future growth. A statement of cash flows is used to show where your business gained money during a certain period of time and how that money was spent (Kimmel, Weygandt, & Kieso, p. 11, 2011). Financial statements would be useful to internal users like managers because they can be used for evaluating the business’s accomplishments and status, and used for taking the right course of action to perfect the business. Employees would use financial statements to assess the business’s earnings and the outcomes on their future standing with the business. Financial statements would be useful to external users like investors because they would show investors whether or not it is a good idea to invest in the business because investors do not want to invest in a business if they are not going to make a profit from it. Financial statements would be useful to external users like creditors because they can use them to judge the debt level of the company and then decide how much credit the business is worthy of. Creditors will set your business’s credit limit depending on the financial health of the business. The main purpose of financial statements is to help both internal and...

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