Four Basic Financial Statements
The four basic financial statements are income statements, retained earnings statements, balance sheet, and statement of cash flows. The paper will describe the individual purpose of the four financial statements; discuss the role of how each financial statement would be beneficial to managers and employees, and how financial statements benefit the investors and creditors outside the business.
Income statements “report the success or failure of the company’s operations for a period of time” (Kimmel, Weygandt, & Kieso, 2009, pg. 12). Let us use my company of Allen Veterinary Hospital for an example. If my boss asked for an income statement I would gather a list of the companies’ revenues and expenses, deduct expenses from the revenues to show if there was a net gain or net loss. Managers can use incomes statements to adjust cost of goods and services. Knowing where to raise and lower costs and still have a positive net income is crucial. Employee benefits are better when the company is netting positive amounts. Investors benefit by seeing the statements because they can project profit and loss trends. Investors do not want to ever lose money. Creditors or suppliers make their assessment of how much credit they are willing to extend.
Retained earnings are “the net income retained in the corporation” (Kimmel, Weygandt, & Kieso, 2009, pg. 13). The retained earnings statement will explain the possible changes in a company’s retained earnings within their specific reporting period. If there were any dividends or withdrawals made by the company or corrections to the net income during the specific time period this retained earnings statement would show corrections and report it. Managers can take advantage of retained earnings for their business by knowing the financial resources available to reinvest in their company. I manage Allen Veterinary Hospital. We are expanding by renovating the two unoccupied suites next to...