ACC 561 Financial Statements Differential
Uploaded by geiger0308 on Apr 15, 2013
Financial Statement Differentiation Paper
Jasmine Unger
ACC/561
April 8, 2013
Professor Timothy Jared
Financial Statement Differentiation Paper
Financial statements provide documentation of a company’s financial history for a set timeframe. One of the financial statement used by investors, creditors, and mangers is the balance sheet. The second statement used by accountant’s income statement, which is also important to shareholders. The third statement is the retained earnings statement, and the fourth financial statement is the statement of cash flows. Each financial statement has a different purpose and shows different aspects of the company’s finances. However, these financial statements are integrated and work together to provide shareholders financial information. This paper will defines the four financial statements while explaining the financial statement most suitable for either an investor, creditor, or management.
The Four Financial Statements
The first financial statement is the balance sheet. The balance sheet provides a portrait of the company’s assets and liabilities. The balance sheet is the statement of financial position at a given point (Quick MBA, 2010). The second financial statement, the income statement, reports the revenues, and expenses during the same timeframe as the balance sheet. Revenue is the monies the company is gaining after expenses. The third statement is called the retained earnings statement, which explains changed in retained earnings. The retained earnings are changed by the company’s income and dividends. The retained earnings statement uses information form the income statement, which changes the financial information on the balance sheet. The final financial statement is the statement of cash flows. The statement of cash flows shows where the business obtained cash during a period of time and how that cash was used (Kimmel, Accounting, 3/e).
Financial Statement for Investors
Investors rely on more than one financial statement but the first financial statement is the statement of cash flows. The statement of cash flows is very important to investors because the amount of cash generated by the company is shown on this statement (Stocks 100, 2010). This is different from the income statement because the statement of cash flows does not include other types of revenues or company expenses. An investor wants to see the organization’s cash flows from different aspects of the company. Some of these areas include the compay’s operating activities, investing activities, and financing activities. Operating activities should show a positive cash flow because this cash flow benefits shareholders. Investing activities can fall into different categories like capital expenditures or monetary...