Financial Statements Essay

944 words - 4 pages

Financial Statements

In accounting there are four basic financial statements that are considered standard practice by the generally accepted accounting principles (GAAP). These are the income statement, the retained earnings statement, the balance sheet and the statement of cash flows. While each of these reports is very important in its own regard, they are also intermingled and depend on each other to represent a complete unbiased view of an organizations financial situation.
The income statement reports revenues and expenditures for the given period of time. This report is important because it will show net income or net loss for a given period of time. However, not all monies ...view middle of the document...

Form the balance sheet potential investors are able to assess the likely hood of the company's ability to pay dividends. The balance sheet also enables creditor's the ability to see the company's ability to re-pay a debt that it wishes to incur. When completed accurately the balance sheet provides the amount for cash under the assets heading. This amount is then transferred to the statement of cash flows as cash at the end of the period.
The last of the four main financial statements is the statement of cash flows. This report shows where all of the cash is going. It covers all of the operating, investing and financing activities of the company. All of these statements are on their own will provide a user with a quick look into the company's financial situation. However, all of these reports are interrelated and depend on information from each other to provide a fair assessment of the financial situation of the organization. Without the accurate completion of each individual statement none of the subsequent statements would provide an accurate accounting for the internal and external users of these statements. 
Some of the internal users who need to understand the company's financial statements are company officers, managers, directors and supervisors. It is imperative that these users are able to read and understand the company's financial statements as they will be the ones to implement any changes that are needed. This can be as simple as justifying to an employee that a change in materials manufacturer was need to help offset the increased cost of something else. These statements also help human resources managers know if they are able to hire more employees, offer a more generous benefits package or provide paid training. Another internal user of these reports are the employees themselves. Employees along with their labor unions would generally use...

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