FINANCIAL STATEMENTS DEFINED
Every business, once developed, contains people both internal and external who take interest either for personal or professional purposes about knowing what is going on with the business, in short these are what accountants and those alike call users. Internal users are those people who working with or in the business and those who are considered external users are people that either invested or credited the business and are not directly employed by the business. Financial statements will keep track of the financial results of the business’ activities.
There are four different formats that will be used to assist in the tracking of all things financial in the business and they are: balance sheet, income statement, retaining earnings statement, and the statement of cash flows. These statements outline the financing, investing, and operating of the business. Financial statements incorporate certain assumptions and principals to make the statements clear and concise so that all users both internal and external can understand and decipher which statements meet there needs.
I would like to begin with explaining the balance sheet, which demonstrates a snapshot of the business’ assets and liabilities. Assets or resources owned by a business and claims to the assets are reported on the balance sheet. The balance sheet is organized in such a way that the assets appear on the top and the claims, which include claims of creditors or liabilities and claims of owners, stockholders’ equity are listed at the bottom. Right after the heading the assets will be outlined and totaled to give you your total assets and below that you will outline your total liabilities and stockholders’ equity this number should be equal to your total assets hence th ...