In this paper it will go through: Identify the four basic financial statements, describe the purpose of each of the four financial statements, discuss how the financial statements would be useful to internal users such as managers and employees, and discuss how the financial statements would be useful to external users such as investors and creditors.
Identify the four basic financial statements.
The four basic financial statements are as follow balance sheet, income statement, statement of retained earnings, and statement of cash flows. These four financial statements are the basic statements normally prepared by profit-making organizations for use by investors, creditors, and other external decision makers. These are the main financial statements that all company’s use to follow how the business is doing threw out the year and each quarter of the facial year.
Describe the purpose of each of the four financial statements.
The purpose of the balance sheet is to report the financial position of an accounting entity at a particular point in time. The income statement reports the accountant’s primary measure of performance of a business, revenues less expenses during the accounting period. The statement of retained earnings reconciles the beginning and ending retained earnings for the period, using information such as net income from the other financial statements. The statement of cash flows is one of the quarterly financial reports any publicly traded company is required to disclose to the SEC and the public. The document provides aggregate data regarding all cash inflows a company receives from both its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given quarter.
Discuss how the financial statements would be useful to internal users such as managers and employees.
Financial statements, which are accounting reports, serve as the principal method of communicating financial information about a business entity or an individual to outside parties such as banks and investors. In a technical sense, financial statements summarize the accounting process and provide a tabulation of account titles and amounts of money. The basic purpose of financial statements is to communicate to external and internal parties’ information about financial decisions that have been made. This shows everyone how their stocks are doing, 401k, as well as how the company over all is doing so that they know the direction of the company is going.
The management style and the expectations of upper-level managers, particularly their control policies, determine the control environment. An effective control environment helps ensure that established policies and procedures are followed. The control environment includes independent oversight provided by a board of directors and, in publicly held companies, by an audit committee; management’s integrity, ethical values, and philosophy; a defined organizational structure with competent and trustworthy employees; and the assignment of authority and responsibility.
Discuss how the financial statements would be useful to external users such as investors and creditors. External users of accounting reports run the gamut from regulators, the public and competitors to investors, traders and portfolio managers. These groups pay heed to corporate financial statements to understand how companies in the middle of the pack emulate the tactics of those ahead of the pack. External readers also use financial statement data to determine businesses that are making money and those that must exit the market or undergo significant reform to continue playing in it. Investors are interested in financial reporting because it provides information that is useful for making decisions. When making these decisions, investors are interested in assessing the company’s ability to generate net cash inflows and management’s ability to protect and enhance the capital providers’ investments. Financial reporting should therefore help investors assess the amounts, timing, and uncertainty of prospective cash inflows from dividends or interest, and the proceeds from the sale, redemption, or maturity of securities or loans. In order for investors to make these assessments, the economic resources of an enterprise, the claims to those resources and the changes in them must be understood.
In this paper we looked at Identifying the four basic financial statements, describe the purpose of each of the four financial statements, discuss how the financial statements would be useful to internal users such as managers and employees, and discuss how the financial statements would be useful to external users such as investors and creditors.
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