Identify the audiences, purposes, and natures of financial statements and managerial reports.
Most business owners have a general knowledge of what accountants do. They capture information and events about a business, and summarize that activity in reports used by persons interested in the entity. In this paper, we will discuss briefly the purpose, nature and use of accounting reports without which financial managers, investors and bankers would be flying blind. Business managers need accounting information to make sound leadership decisions. Investors hold out hope for profits that may eventually lead to distributions from the business (e.g., "dividends"). Creditors are always concerned about the entity's ability to repay its obligations. Governmental units need information to tax and regulate. Analysts use accounting data to form their opinions on which they base their investment recommendations. Employees want to work for successful companies to further their individual careers, and they often have bonuses or options tied to enterprise performance.
The income statement, the balance sheet and the statement of cash flows are three basic types of financial statements. The income statement is a summary of an entity's results of operation for a specified period of time. It provides information about revenues generated and expenses incurred. The difference between revenues and expenses is defined as net income or net loss. Small business owners use these statements to find out what areas of their business are over budget or under budget. Specific items that are causing unexpected expenditures can be pinpointed, such as phone, fax, mail, or supply expenses. Income statements can also track dramatic increases in product returns or c ...