Acc/ 5561 Week 1 Essay

708 Words Oct 13th, 2011 3 Pages
Week 1 Assignment

October 5, 2011
Dr. Terry Chen

When it comes to documenting financial statements, it is vital that they are clear, based on specific data, and can be used for the decision making process to be effective. In this case, there are four financial statements that will be reviewed; the balance sheet, the statement of cash flows, the income statement, and the retained earnings. These four all prove to be important in different aspects of business as it relates to “the numbers” game. The questions that are to be addressed in this paper is which of these statements will appeal to the likes of creditors, interested investors, and management.

Income Statement

The income statement takes into
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Retained Earnings Statement

According to "The Four Financial Statements" (1999-2010) “The retained earnings statement or the statement of owner’s equity illustrates the changes in earnings retained in the company.” Management uses this to verify the amount of profit paid by the company to shareholders. Creditors could use the retained earnings judge the ability to pay back a debt. This document is also important to investors because it helps investors to choose which company in which they can make an investment.

Balance Sheet

The balance sheet is a vital part of the businesses records because it reveals the liabilities and the assets they have. A balance sheet consists of Current Assets, Accounts Receivable, Inventory, Depreciations, Liabilities, Accounts Payable, Short-term Debt, Investments, Stockholder’s equity, retained Earnings etc. The balance sheet allows investors to form an idea as to what the company owns and debts incurred. Creditors could find this useful by viewing the liabilities of the company. Managers could use the info from the balance sheet to design a strategy to improve on debt and cut spending.

Statement of Cash Flows

Cash flows provide statements that involve the amount of cash that is received and dispersed from the company in a particular time frame. The statement of cash flows summarizes the company’s operating activities. Operating activities uses sales revenue, services, sales, marketing, and many

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