Acc 290 Financial Statement Analysis

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Financial Statements ACC/290 August 13, 2012 Paul Dommes Financial Statements A business’ success or failure is based on numbers - the bottom line. Financial statements communicate these numbers to users, both internal and external, in a group of documents called financial statements. The financial statements are the income statement, the retained earnings statement, the balance sheet, and the statement of cash flows. The results of one statement become an input in another interrelating them. The first statement is the income statement. An income statement documents the income for a period of time. External users, such as investors and creditors utilize income statements as an indication of future performance-based on past income when deciding whether to invest in a company or the probability of loan repayment. Internal users, such as managers and owners may use the net income to verify sales goals or justify bonus payment. When preparing the income statement, the first entry is revenue. The sum of money received from selling a…show more content…
It is possible that a company will decide to retain all of the net income in lieu of paying the shareholders. It may be necessary to retain all the net income to expand the business. The retained earnings statement communicates these funds. Lenders watch their customer’s dividend payment on this statement carefully. If a company pays out dividends, it may reduce their capability to pay their liabilities. The first entry is the retained earnings from the previous financial period. The next entry is the net income from the income statement. If dividends were paid to shareholders, the amount would be deducted from the sum of previous retained earnings and the net income. The result would be the retained earnings from the current financial period. The current retained earnings total is utilized by the balance

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