ACC 290 Week 1 Individual Assignment Financial Statements Paper
ACC 290 Week 1 Individual Assignment Financial Statements Paper
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Date Created: 11/13/15
Financial Statement Report 1 Financial Statement Report ACC290 University of Phoenix Financial Statement Report 2 Financial statements is a more common term used to refer to statements produced at the end of the accounting periods such as the income statement balance sheet cash ow statement and the statement of owner s equity These four financial statements are sometimes known as the final accounts which the business prepares The income statement also known as the trading and profit and loss account is a financial statement which helps to calculate the gross profit and the net profit of the company for a particular year Most of the businesses prepare the income statement because they compare revenues with expenses and check the performance If the revenue exceeds the expenses the business has earned a profit and vice versa The information contained in the income statement is not only but also useful for the internal users of the business such as the managers and owners but however it is also useful for the external users such as government investors and creditors For internal users income statement helps to check the performance and profitability of the business Owners invest their money merely to earn profits and thus it is necessary for them to check the amount of money they have earned in an accounting period Similarly manager s status is directly linked with the profitability of the business If the organization has able to achieve higher profits manager s salary and status often increases Moreover income statements also help to check the revenues and expenses of the business and thus managers can decrease their unnecessary expenses to earn more profits In the same way making of income statements is also useful for the external users such as investors creditors and the government Investors usually check the income statements of the organization to check the past financial performance of the business and Financial Statement Report 3 to assess the capability of generating future cash ows Moreover creditors also take the help of the income statement to check whether the business has enough revenue to pay its dues on time Finally the government needs to check in order to calculate the taxes which the firm has to pay with respect to the profits earned over time The balance sheet is another financial statement which shows the assets liabilities and the capital of the business This document is prepared at the end of the accounting period and it helps to check the liquidity position and the current health of the organization It is based on an accounting model e g assets capital liabilities Internal users such as managers and owners take the help of the balance sheet to check the liquidity of the business This document helps managers to manage assets and liabilities so that enough working capital can be made available in an accounting period By seeing the inventory levels account payables and account receivables the managers can change the policies and can reduce the inventory levels In the same way external users such as investors and creditors do check the balance sheet to assess risk and collateral issues The investor would not be reluctant to invest in the business that has high liquidity and gearing ratio This means the business that has the problem of managing working capital is usually considered a highly solvent business The cash ow statement is the third financial statement which lists the cash ows of a business over a period of time usually the same period as is covered by the income statement It helps the business to check its cash in ows and out ows and to see whether the business has cash surplus or shortage This financial statement is useful in evaluating a company s ability to pay its bills on time Cash is considered as the most Financial Statement Report 4 liquid asset and business that are short of cash usually close down So this tells the value of preparing the statement of cash ows For internal users cash ow statement helps managers to check whether appropriate cash is available to pay the daytoday expenses of the business Workers of the business also use the cash ow statement to know whether the company will be able to afford compensation In the same way many external users such as creditors and investors do take the help of the cash ow statement to assess the liquidity position of the firm Creditors use this financial document because they want the clear picture of the company s ability to pay Similarly investors need to see the financial position and to judge whether the business is strong financially Finally statement of owner s equity also known as statement of retained earnings is the last financial statement which the business prepares at the end of the accounting period This statement uses the information provided by the income statement and provides information to the balance sheet This statement is mostly useful for the owners because they want to see how much every other owner has invested and thus they want to assess their share in the ownership However this financial statement is not that much useful for the external users but sometimes investors do see this statement to check out the activities of the original owners So to put the details in a nut shell it can be said that making of financial statements is the top most priority of any organization and firms must make sure that authentic values should be taken when preparing these statements All of these four financial statements summarize the performance profitability and the liquidity of the business and thus internal and external are interested in these statements Financial Statement Report 5 Refe renges Four nancial statement 1999 Retrieved July 18 2011 from Quick MBA httpWWWquickmbacomaceountingfinstatements Best B nd Usefulness of Financial statement Retrieved July 18 2011 from Benbest Corporation httpWWWbenbestcombusinessfinancehtm1 Cash ow statement nd Retrieved July 18 2011 from Wikipedia Corporation httpenwikipediaorgWikiCash owstatement
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