Financial Statement

Financial Statement Companies use several tools such as a balance sheet to make sound business decisions. A balance sheet is a quantitative summary of a company's financial condition at a specific point in time, including assets, liabilities and net worth. The first part of a balance sheet shows all the productive assets a company owns, and the second part shows all the financing methods (such as liabilities and shareholders' equity) Also, called statement of condition. On a balance sheet, assets are equal to the sum of liabilities, common stock, preferred stock, and retained earnings. Another tool used by companies to make decisions is a company's Income statement. An income statement is an accounting of sales, expenses, and net profit for a given period. The purpose of this report is to view the company's performance (profits and losses) over a designated period of time. It lists the company's revenues and its debts during operational and non operational periods. The balance sheet works in conjunction with the income statement: both deals with matters that concern investors. The next tool used is called a retained earnings statement. A retained earnings statement is a financial statement that lists a firm's accumulated retained earnings and net income that has been paid as dividends to stockholders in the current period. Also can be known as, statement of retained earnings. It is important for everyone to understand that retained earnings do not represent surplus cash or cash left over after the payment of dividends. Rather, retained earnings demonstrate what a company did with its profits; they are the amount of profit the company has reinvested in the business since its inception. These reinvestments are either asset purchases or liability reductions. Next in line is the statement of Cash flows. Statement of cash flows is a summary of a company's cash flow over a given period of time. What can the statement of cash flows tell us? It’s simple, because the income statement is prepared under the accrual basis of accounting, the revenues reported may not have been collected. Similarly, the expenses reported on the income statement might not have been paid. You could review the balance sheet changes to determine the facts, but the cash flow statement already has integrated all that information. As a result, savvy business people and investors utilize this important financial statement. A company also uses comparative statements to track gains, losses, and trends over a given time period. This allows that company to forecast future performance in order to make sound business decisions. Viewing and researching how a company did last year, or the year before, or an average over the past five years can ease doubt, assist with finding solutions, and either make or break a company's financial future. References †¢This is the site used for definitions under financial statements, http://www. investorwords. com/1957/financial_statement. html †¢This is the site I read about each topic, some topics are in other topics. http://www. accountingcoach. com/explanations. html Financial Statement In this week, learning and understanding how import the financial account in the company’s financial performance is very important in becoming a manager. This account, records all financial information to which management, creditors, stockholders, potential investors and regulatory agencies understand the financial consequences of a company’s decision and actions. Whether the company has an increasing revenue or losing assets, the company’s credit worthy ness, complying with taxation and regulation of the agencies and government, financial statement is data recorded of the company’s activities (Cleaves, Hobbs, & Noble, 2012).In creating a financial statement, one must understand the three fundamentals. The first one is an income statement which commonly known as profit and loss statement. It shows the number of profits produced by the company over a given time, let say 1 year. By subtracting the sales or revenue from cost of goods sold to yield to profits. Balance sheet is the second statement which deliver a snapshot on a specified date of a firm’s financial position, giving its asset holdings, liabilities, and owner-supplied capital (stockholders’ equity).In an equation form, total debt (liabilities) plus total shareholders is equal to total assets. The total assets characterize the resources own by the company while liabilities and shareholder’s equity suggest how those resources had financed. By law, the company needs to report the amount of the company’s numerous assets in the balance sheet by using the actual cost of obtaining them to show the historical transaction at their cost. There are two types of analysis used in comparing information in the balance sheet, horizontal and vertical.Horizontal or trend analysis pertains to item by item comparison with a number of quarters within a fiscal year or other years. Vertical analysis uses percentage to compare an each item against total asset of financia l statement. The last statement is cash flow recognizes the sources and expenditures of a company’s cash. In measuring cash flow, we can use two approaches, statement of cash flows and free cash flows or financing cash flows.Statement of cash flows identifies the bases and expenditures of cash that describe the change in the company’s cash balance reported in the balance sheet. Once the company has compensated all of its operating overheads and taxes and completed all of its investments, any residual cash is free to be dispersed to the creditors and shareholders. On the other hand, if the free cash flows are negative, manager will have to procure financing from creditors or shareholders (Keown, Martin & Petty, 2014). Financial Statement In this week, learning and understanding how import the financial account in the company’s financial performance is very important in becoming a manager. This account, records all financial information to which management, creditors, stockholders, potential investors and regulatory agencies understand the financial consequences of a company’s decision and actions. Whether the company has an increasing revenue or losing assets, the company’s credit worthy ness, complying with taxation and regulation of the agencies and government, financial statement is data recorded of the company’s activities (Cleaves, Hobbs, & Noble, 2012).In creating a financial statement, one must understand the three fundamentals. The first one is an income statement which commonly known as profit and loss statement. It shows the number of profits produced by the company over a given time, let say 1 year. By subtracting the sales or revenue from cost of goods sold to yield to profits. Balance sheet is the second statement which deliver a snapshot on a specified date of a firm’s financial position, giving its asset holdings, liabilities, and owner-supplied capital (stockholders’ equity).In an equation form, total debt (liabilities) plus total shareholders is equal to total assets. The total assets characterize the resources own by the company while liabilities and shareholder’s equity suggest how those resources had financed. By law, the company needs to report the amount of the company’s numerous assets in the balance sheet by using the actual cost of obtaining them to show the historical transaction at their cost. There are two types of analysis used in comparing information in the balance sheet, horizontal and vertical.Horizontal or trend analysis pertains to item by item comparison with a number of quarters within a fiscal year or other years. Vertical analysis uses percentage to compare an each item against total asset of financia l statement. The last statement is cash flow recognizes the sources and expenditures of a company’s cash. In measuring cash flow, we can use two approaches, statement of cash flows and free cash flows or financing cash flows.Statement of cash flows identifies the bases and expenditures of cash that describe the change in the company’s cash balance reported in the balance sheet. Once the company has compensated all of its operating overheads and taxes and completed all of its investments, any residual cash is free to be dispersed to the creditors and shareholders. On the other hand, if the free cash flows are negative, manager will have to procure financing from creditors or shareholders (Keown, Martin & Petty, 2014).