Four Basic Financial Statements

Essay by kbinghamCollege, Undergraduate December 2009

download word file, 3 pages 0.0

Downloaded 30 times

IntroductionIn the world of finance, owners of businesses, investors, employees, creditors and especially accountants, use four basic financial statements to help in determining how well an organization is doing and being able to see the potential in earnings in that organization. These statements are a vital tool in helping to understand and see the state of the organization. So what do these statements mean to us as individuals and do they mean something dissimilar? They may mean something totally different to a business owner, employee, creditor or accountant.

Four Basic Financial StatementsThe first statement is the income statement. This particular statement shows how revenues and expenses create a picture about net income and/or net loss for a specific period of time for an organization. Its purpose is to demonstrate the profitability of a company and where a company can improve. An income statement is read with the list of revenue at the top, then a list of expenses of that particular organization, and lastly, the organizations net income or net loss.

The next is the statement of stockholders equity. The statement of stockholders equity details changes in the investments made by the organizations owners, including stock issuances, stock repurchases , stock conversions, dividends paid, net income or net loss (McGladrey, Pullen, 2006).

Third is the balance sheet. This statement helps to take a look at how an organization is progressing or digressing. The balance sheet consists of stockholders equity, liabilities and assets for a certain period of time. At the top of the balance sheet is listed the assets, then the liabilities and lastly, the stockholders equity. Both the liabilities and assets are divided into both long-term and short-term. When looking at a balance sheet, the assets have to equal the liabilities so to have the bottom...