ACC 290 January 23 2013 Introduction The paper is going to talk about accounting, and identify the four basic financial statements. The paper explains how the different financial statements are useful to internal users like managers and employees and external users like investors and creditors. Accounting is the process of communicating financial information about the businesses to managers, investors, creditors, and employees. Accounting is also a tool for the business or companies to analyze, retrieve, and record important financial information that can determine company’s financial situation.The purpose of accounting is to help understand people about the financial situation of the company and make help them make safe financial decision.
The key of success for accounting lies in the effective communicating and how the information is recorded on the four financial statements. Income Statement, Retained Earnings Statement, Balance Sheet, and Statement of Cash Flow. Financial Statements The four basic financial statements of accounting are the Income Statement, Retained Earnings Statement, Balance Sheet, and Statement of Cash Flows.The income statement reports companies profit and loses for a period of time.
The income statement also records companies revenue and expenses occurred during that period. (Formula: Revenue-Expenses=Net Income or Net Loss). The retained earnings statement shows increases and decreases to stockholders equity accounts for a specific period of time (Formula: Stockholders Equity= Common Stock + Retained Earnings). The Balance Sheet reports assets, liabilities, and stockholders equity.
It shows companies financial situation on a particular data.Balance sheet record what company Owens and also what it owned (Formula: Assets= Liabilities+ Stockholders equity). The statement of cash flow records the financial information of the company’s cash receipts and cash payments for a specific period of time. The cash flow reports the cash effects of a company’s operating, investing, and financial activities. The statement of cash flow shows the increase and decrease of cash during the period and the amount of cash at the end of the period.
Internal Users The financial statements help internal users like managers and employees understand the needs and wants of the business.The four financial statements help the managers, production supervisor, finance director, and company’s officers to make a sound financial decision in production or marketing the product. It also helps them to answer the questions they have about making the decision on launching new product in the market and tells them how much revenue will be generated from the new product, the increase of company’s profit margin, how the company’s net income will be affected afford giving the pay raises or bonuses to the employees, the product are having positive and negative response in the market and do we need to eliminate any of the product.These questions are answered by the internal user of the company or a business with the help of four financial statements. Income Statement, Retained Earnings Statement, Balance Sheet, and Statement of Cash Flows. External Users There are several types of external users of accounting investors the (owners) use the accounting information in buying, holding, or selling the companies’ stocks. Creditors are the other external users such as bankers and suppliers.
This people use the accounting information to evaluate the company risk of selling the stocks, or lending the money.The questions that external users ask is company generating sufficient income, is this company able to pay their loan on time, what is the company’s credit in the market, and if the company is operating under the profit or loss and for how long. This question can be answered by the information provided on the financial statements. Conclusion Income Statement will answer the entire question regarding company’s income, profit, and loses. Retained Earnings Statement will answer about the stock prices and increase or decrease of the value in particular period and company’s value in the market.The Balance Sheet will report the financial situation of the company what company Owens and also what it owned. At last the Statement of Cash Flow will report cash receipts and cash payments for a specific period of time and the increase or decrease of cash in the company for specific time or period.
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