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Information about a company is reported on financial statements that show the company’s financial state of being. Reports made on a balance sheet, an income statement, a retained earnings statement, and a statement of cash flows show different aspects of a company’s financial situation. Lenders, creditors, and investors use these documents for determining the future prospects of the company. Managers within the company also use these documents to make decisions about the daily operations of the company.
The income statement reports the success or failure of a company’s operations for a period by listing the company’s revenues and expenses (Kimmel, Weygrandt, & Kieso, 2003). The net income of the company is determined on the income statement by deducting expenses from ...view middle of the document...
The statement of cash flows provides financial information concerning the cash receipts and cash payments of a company for a specific period, including the amount of cash at the end of the period and the net increase and decrease (Kimmel, Weygrandt, & Kieso, 2003). The statement of cash flows includes a report of the cash effects of operating activities, investing activities, and financing activities to assist in the analysis of the company’s cash position (Kimmel, Weygrandt, & Kieso, 2003).
Companies can present this information to lenders and creditors for evaluation when they need a loan or a restructuring of an existing loan. These statements also can be used as comparative statements by comparing the statements made at different periods in time. Comparing these statements in this way shows trends and can help managers within the company make decisions on anything from how much inventory to maintain, to how much operating cash to keep. Managers can look at the assets, liabilities, and various other aspects of these statements over different periods to make informed projections about future financial needs. Concerns such as how much operating cash to keep and dividends to pay out can be determined by comparing statements to project the future needs of the company.
Financial statements can be used in many ways within a company, and by users outside of the company. With accurate reporting practices, financial statements allow companies to conduct business efficiently and gain operating capital when needed. These financial documents allow managers, investors, and creditors to make informed decisions about the future needs and well-being of the company and without them many decisions could not be made with confidence regarding their outcome.
Kimmel, P., Weygandt, J., & Kieso, D. (2003). Essentials of accounting: Tools for business decision making (2nd ed.). Hoboken, NJ: Wiley