IntroductionIn any business, one of the primary means of achieving success and maintaining it; is to turn a profit or make money. However, it is not merely enough to sell a product or service at a higher cost than it takes to produce the product or provide the service. Because of the various factors that can impact the finances of a business, it is necessary to be able to identify, record, and communicate economic events that affect the business. (Weygandt, Kimmel and Kieso, 2008. pg. 4). That is why accounting is so vital, as it is the means in which these three activities are conducted.
Four Basic Financial StatementsThere are different forms of accounting, based upon who the end user of the information will be. For internal users of the information, such as marketing managers, production supervisors, finance directors and company officers the information is presented in internal reports, which is managerial accounting.
For external users, such as investors, creditors, taxing authorities, regulatory agencies, customers and labor unions the information required has to allow them to see if the company is making a profit, is able to meet its obligations, etc. This type of information is presented in external reports, which is financial accounting. (Weygandt, Kimmel and Kieso, 2008. pg. 6-7).
To minimize the amount of information an external user would have to sift through to get a general idea of a company's financial health, companies typically produce four different types of basic financial statements.
The four basic financial statements are:1) Income Statement - "Presents the revenues and expenses and resulting net income or net loss of a company for a specific period of time." (Weygandt, Kimmel and Kieso, 2008. pg.21). This is probably the simplest of the four statements as it is merely a representation of income versus expenses.