Financial Statements week 1

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Financial Statements
Afaga Palasi
May 17, 2015
Principals of Accounting I
Donna Adams

Financial statement is a more of a common term used to refer to procedures at the end of the accounting periods; such as the income statement, balance sheet, cash flow statement and the statement of owner’s equity. These four financial statements area sometimes known as the financial accounts in which the business prepares. To make decision for investing in certain business we need to have a proper view of each and every parts of the business. All of these information can be found after separating the business.

The trading and loss and profit account also known as the income statement helps calculate the gross profit and the net profit of the company for a particular year. The income statement is one of the most important documents for an investor’s decision making. This sheet displays the revenues and expenses of a company for a specific period of time. If the revenue exceeds the expenses, the business has earned a profit and vice versa. Information that is within an income statement not only is important to internal users (managers and owners) but also with external users (government, investors and creditors).

Income statements for internal users helps check the performance and profitability of the business. Owners invest their money to earn more profits and it is necessary for them to check the amount of money they have earned in an accounting period. Income statements also helps managers to decrease their unnecessary expenses to earn more profit. As for the external users such as the government, they use the income statement to check and calculate the taxes which the firm has to pay with respect to the profits earned over time.

Balance sheet is one of the financial statements which shows the assets, liabilities and the capitol of the business. The difference between the assets and the liabilities shows the net worth of business. The balance sheet also...
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