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Acc Week 1 Assgnment Essay

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Financial Statements and Their Functions


Financial Statements and Their Functions
There are four basic types of financial statements that accountants use.   There is a balance sheet, income statement, retained earnings statement, and the statement of cash flows. Each type of statement has its own unique function to help focus on different areas of finance within an organization.
The balance sheet is used to demonstrate in a specific time period what a business owns (assets) and what the company owes to others (liabilities). An income statement shows how profitable a company is within a specific time period. This statement focuses on revenues and expenses.   A retained earnings statement is used to document how much previous income was to you and the other owners of the business. This is shown in the form of dividends, and how much was retained in the business to allow for future growth. In order to show where a business obtained cash during a period of time and how the cash was used a statement of cash flows is the best statement to use.
Financial statements have different uses for different types of users. There are internal users such as managers and employees. These users count on financial statements in many ways, one way is to see the company’s profits and growths or losses and determine if there is job security. If you see financial statements where the profit keeps going down then you know they are not very successful and you could be out of a job soon. On the other hand if the numbers keep increasing or at least stay level then you can have assurance that your job will not go away. Managers also use financial statements to see what sales are like and determine what steps need to be made to increase sales and profits.
External users such as investors and creditors use financial statements as well.   A potential investor can determine from a company’s financial statement whether or not it is a good decision to invest their money into a company. If the...

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