Income Statement, Balance Sheet, And Statement Of Cash Flows

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Introduction Financial Statements are essential to any business. It is through the financial statements that a company’s owners, lenders, shareholders, and general stakeholders are able to track a company’s performance as well as make business decisions. Each financial statement has its own unique purpose and components. This paper will explore the structure and uses of an income statement, balance sheet, and statement of cash flows.
Income Statement An income statement is shows a business’ revenues, expenses, and profits or losses over a given period of time. Revenues are derived from any money received from any goods sold or services performed by a company. There are multiple types of expenses a business can incur. Costs of Goods Sold
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Liabilities can also be short-term and long-term in nature, and can consist of line items such as accounts payable, accrued liabilities, accrued income taxes, and long-term debt. Liabilities are created by purchases on credit, direct borrowing, and the accrual of obligations such as taxes and wages. The final part of the balance sheet is equity. Equity is made up of is the investment of the owners in the company. While liabilities reflect a creditors claim to a company’s assets, equity is reflects the owner’s claims to a company’s assets. Owner’s equity is usually broken down into three parts. These three accounts are preferred equity/stock, common equity/stock, and retained earnings. Preferred and common stock refers to the number of shares outstanding at par value. The retained earnings account is made up of earnings that have not been paid out as dividends, and have been reinvested in the company as fixed assets (Melicher, et al., 2013). A balance sheet shows a business’ financial position, including what it owes and what it …show more content…
The cash flow statement is divided into three parts: operating activities, investing activities, and financing activities. Operating activities are translated from the income statement from accrual accounting to cash. Investing activities includes any long-term investments or property, plant, and equipment sales or purchases during the specified time period. Lastly, financing activities are made up of the issuance and repurchase of a company’s stock and/or bonds as well as dividend payments (Cash Flow Statement, 2015). The cash flow statement is useful for investors and stakeholders when examining how well a company is using its

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