Financial Statements

1.       Assignment: Financial Statements

·         Write a 350- to 700-word paper describing a balance sheet, an income statement, a retained earnings statement, and a statement of cash flows. How does a company use these financial statements to make future business decisions? Use and define the following terms in your paper when explaining how a company uses the information on the statements:

o    Assets

o    Comparative statements

o    Liabilities

o    Stockholder’s equity

·         Format your paper according to APA standards.

·         Post your paper as an attachment.

Balance sheet - 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.

A balance sheet is a summary of the financial condition at any point in time.  It includes all assets, liabilities and your net worth.  Your check book would be an example of a balance sheet.  It shows your income (assets), bills (liabilities) and how much you have left (net worth). 

Income Statement - Financial document showing a company's income and expenses over a given period (like one fiscal year). Also known as the Earnings Statement or Statement of Operations. The "bottom line" of the income statement is the company's earnings for the period.

An income statement shows your assets and liabilities over a period of time.  Your bank statement would be a good example of an income statement.  It shows all income and all outgoing for the month.
statement of retained earnings - 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 called retained earnings statement.

A statement of retained earnings is the income which is paid to stockholders during any given period.

Cash Flow Statement - Financial document detailing the exchange of cash between a business and the outside world. The flow is categorized as:

• flow "in" from Operations
  (cash the company made by selling goods and services)
• flow "in" from Financing
  (cash the company raised by selling stocks and bonds)
• flow "out" to Investing
  (cash the company spent investing in its future growth)

Each of these flows can actually flow both ways. Investors like to see that the company can cover its spending with cash from operations, without having to turn to financing. The cash flow statement also has to reconcile the net effect of these flows with the difference in its cash holdings at the beginning and end dates of the reporting period.
A cash flow statement shows the flow in and out from all goods and services, stocks and bonds and investing for any given reporting period.
Asset - Any item of economic value owned by an individual or corporation, especially that which could be converted to cash. Examples are cash, securities, accounts receivable, inventory, office equipment, real estate, a car, and other property. On a balance sheet, assets are equal to the sum of liabilities, common stock, preferred stock, and retained earnings.From an accounting perspective, assets are divided into the following categories: current assets (cash and other liquid items), long-term assets (real estate, plant, equipment), prepaid and deferred assets (expenditures for future costs such as insurance, rent, interest), and intangible assets (trademarks, patents, copyrights, goodwill).

An asset is anything of value that is either cash or can be converted to cash. 

Comparative statements - Financial statements which follow a consistent format but which cover different periods of time. Useful for spotting trends.

A comparative statement is a form that covers different periods of time in order to help spot patterns.

Liabilities - Plural of liability. A liability is a financial obligation, debt, claim, or potential loss.

A liability is anything that still costs you money, such as a bill or any items that could cause a debt.

Stockholder’s equity -

A company's common stock equity as it appears on a balance sheet, equal to total assets minus liabilities, preferred stock, and intangible assets such as goodwill. This is how much the company would have left over in assets if it went out of business immediately. Since companies are usually expected to grow and generate more profits in the future, most companies end up being worth far more in the marketplace than their stockholders' equity would suggest. For this reason, stockholders' equity is of more interest to value investors than growth investors. also called book value.

            A balance sheet is a summary of the financial condition of your company at any point in time.  It includes all assets, liabilities and your net worth.  An asset is anything of value that is either cash or can be converted to cash.  A liability is anything that still costs you money, such as a bill or any items that could cause a debt.  Your net worth is how much income you have after subtracting your liabilities.  Your check book would be a good example of a balance sheet.  It shows your income (assets), bills (liabilities) and how much you have left (net worth).   An income statement shows your assets and liabilities over a period of time.  Your monthly statement from your bank would be a good example of an income statement.  It shows all income and all outgoing for the month.  This could also be called a comparative statement, which is a form that covers different periods of time in order to help spot patterns.  By combining multiple bank statements for several months you have a comparative statement which allows you to compare months to help you spot patterns in your spending and income.  A statement of retained earnings shows the changes in a company’s retained earnings in any given reporting period.  Retained earnings are the portion of income which is kept by the company often given to stockholders as dividends.  Stockholder’s equity is the value of a company’s assets minus liabilities, stock and intangible assets.  Basically what a company is worth if it goes out of business right away.  This is what value investors are interested in more than growth investors. A cash flow statement shows the flow in and out from all goods and services, stocks and bonds and investing for any given reporting period.  Each of these can be used to make future business decisions, either individually or in tandem.  These reports give you a clear picture of all your assets and liabilities for any period in time.  With this information you can see what trends develop.  Once you see patterns in your spending and income you can then develop future plans for expanding or enhancing your business.  Seeing patterns in your reports can also help you trim in places where you see that you are spending too much money.