A balance sheet is a financial statement that reports the assets, which are resources owned by a business, liabilities, and stockholders’ equity at a specific date. Examples of assets would be computers, delivery trucks, furniture, and buildings.
A balance sheet has two categories: Assets, liabilities, and stockholders’ equity. Liabilities are the debts and obligations of a business. Liabilities represent c claims of creditors on the assets of business. Examples of liabilities would be notes payable, salaries payable, and interest payable. Stockholders’ equity is the stockholders’ claim on total assets. Stockholders’ equity contains common stock, results when the company sells news shares and retained earnings are the net income retained in the corporation.
A balance sheet is exactly what it is, a balance between the assets, liabilities, and stockholders’ equity. The basic accounting equation is Assets = Liabilities plus Stockholders’ Equity. An income statement is a report that reports success or failure of the company’s operations for a period of time. The income statement lists the company revenues followed by its expense. The net income (or net loss) is determined by deducting expenses from revenue.
Retained earnings statement is a report that shows the amounts and causes of changes in retained earnings during the period. The beginning retained earnings amount is shown on the first line of the statement. Then net income is added
A statement of cash flow is a report that provides financial information about the cash receipts and cash payments of a business for a specific period of time. The statement of cash flows reports the cash effects of a company’s: (1) operating activities, (2) investing activities, and (3) financing activities. The statement also shows the net increase or decrease in cash during the period and the amount of cash at the end of the period.
The balance sheet, income statement, retained earnings, and the statement of cash flows can be a comparative statement. A comparative statement is financial statements that report information for more than one period. Comparative statements allow users to compare the financial position of the business at the end of the accounting period with that of a previous period, for example, comparing an income statement for the years ending in 2008 and 2009.
A company uses a balance sheet to make future business decisions by determining whether their inventory is adequate to support future sales and if the cash on hand is enough for immediate cash needs. They also look at the relationship between debt and stockholders’ equity to determine whether they have the best proportion of debt and common stock financing.
A company uses an income statement to make future business decisions if they want to get a loan from the bank, the bank will look at their income statement as a source of information to predict whether the company will be profitable enough to repay its loan.
A company uses a retained earnings statement to make future business decisions by monitoring the retained earnings statement; financial statement users can evaluate dividend payment practices. The company has to decide what portion of profits to pay to shareholders in dividends.
A company uses a statement of cash flows to make future business decisions by knowing what is happening to a company’s most important resource. The statement of cash flows provides answers to these simple but important questions: (1) where did the cash come from during the period? (2) how as cash used during the period?; and (3) what was the change in the cash balance during the period?