One of the financial statements is balance sheet is used to present a point in time of what the business assets are and what its liabilities are and if there is any equity. This statement is asked from banks when you may ask for a credit line with them; they would like to see whether you can afford to pay them back. The balance sheet show the company financial condition.
The income statement measures a company's financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period, typically over a fiscal ...view middle of the document...
Retained earnings is a part of equity, the statement explains the changes in retained earnings from net income or loss and from any dividends over a period of time. This statement can be used to evaluate dividend practices. Investors may seek companies that pay higher dividends, why, because they receive the dividends instead of reinvesting into the company.
The statement of cash flows is what the company is generating such as what may be invoiced for services, then what must go out for supplies to conduct those services which shows net increase or decrease during a period and the amount of cash at the end of a period. This comes in handy for investors because they can see where the company’s money goes towards. Is it paying for things that are needed? So in other words this is known as operating activities, investing activities, and financing activities. When managers review the cash flow statement they should be able to see how the business’ cash increased or decreased for the period. This allows managers to look at how and in what areas the business is generating cash, or not generating cash. With this information they will be able to make adjustments to any operations, investing or financing activities.
The four statements are interrelated by using each of their numbers. The retained earnings statement depends on the results of the income statement, also the ending amount of the retained earnings are reflected on the balance sheet. Lastly the ending cash amount sown on the statement of cash flows should agree with the cash amount on the balance sheet. To be able to prepare the statement correctly, first the information should be input correctly, and second, understanding the sequence of how the amounts are determined is how each one impacts each other.