Financial Statements Essay

813 WordsFeb 7, 20124 Pages
Financial Statements ACC 290 University Of Phoenix Gregory Morgan December 5, 2011 In accounting there are several financial papers that an individual needs to be able to read and respond to. The four basic financial statements are the balance sheet, income statement, statement of cash flows, and retained earnings statement. They each have different purposes and tell certain people different things provided they are able to understand the data that is presented in the reports. The balance sheet shows what a company owns and owes at any point in time because this statement is updated monthly, but sometimes even daily. Things a person would expect to see on a balance sheet are assets, liabilities, and shareholders’ equity. According to the SEC assets are: “things that a company owns that have value. This typically means they can either be sold or used by the company to make products or provide services that can be sold. Assets include physical property, such as plants, trucks, equipment and inventory. It also includes things that can’t be touched but nevertheless exist and have value, such as trademarks and patents. And cash itself is an asset. So are investments a company makes (US Securities and Exchange Commission, 2011). Liabilities are also included on the balance sheet. Liabilities are things the company owes for the business. Things like loans, payroll for employees, rent for building space and so on. The other thing that is listed on a balance sheet is shareholders equity. To determine the net worth of shareholder equity the company would have to sell off all the stock and equipment and pay off all the liabilities. This would show the net worth of the company or business. The income statement is the next statement we will cover. The income statement shows how much a company has earned over a specific period of time, usually a year unless otherwise

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