Internal Operations

Financial Statements

This paper will identify the four basic financial statements; discuss how they are interrelated with each other, and why they are useful to managers, investors, creditors, and employees.

Balance Sheets

The balance sheet is like a snapshot of a company's financial condition at a specific moment in time. The balance sheet reports the assets, liabilities, and stockholders' equity at a specific date. The company prepares the balance sheet from the column headings and the month-end data shown in the last line of the summary of transactions. The balance sheet lists assets at the top, followed by liabilities and stockholders' equity. Total assets must equal total liabilities and stockholders' equity.

Income Statements

The income statement reports the success or profitability of a company's operations over a specific period of time. The heading of the statement identifies the company, type of statement, and time period covered by the statement. The income statement is usually outlined as follows; revenues followed by expenses and will normally show net income or loss. The income statement does not include investment and dividend transactions between stockholders and business in measuring net income.

Retained Earnings Statement

The retained earnings statement reports the changes in retained earnings for a specific period of time which is normally the same as that covered by the income statement. Data for the preparation of the statement comes from the retained earnings column of the summary of transactions and from the income statement. The first line of the statement shows the beginning retained earnings amount then the net income and dividends. The ending balance is the final amount on the statement. The information provided by this statement indicates the reasons why retained earnings increased or decreased during said period. If there is a net loss, it is deducted with dividends.

Statement of Cash Flows

The statement of cash flows provides information on the cash receipts and payments for a specific period of time. This statement reports the cash effects of a company's operations during that period, its investing transactions, its financing transactions, the net increase or decrease in cash during the period, and the cash amount at the end of the period. Reporting the sources, uses, and change in cash is useful because investors, creditors, and others want to know what is happening to a company's most liquid resource. This statement provides answers to the following simple but important questions; Where did cash come from during the period, What was cash used for during the period, and What was the change in the cash balance during the period?

Usefulness