Financial Statement Differentiation
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Financial Statement Differentiation
University of Phoenix
Accounting
Acc/561
Norsey Dorris
June 22, 2012
There are four financial statements that users view to determine the health of companies, which are the balance sheet, income statement, retained earnings statement, and the statement of cash flows. These statements typically represent the backbone of a company and are viewed for various purposes from investment decisions to projected future earnings to credit risks. Each statement serves a purpose and are analyzed differently depending upon the user.
Income Statement
An income statement reports a business’s revenues and expenses and represents how successful a business has been operating during a specific period of time. Past net income provides information for predicting future net income, which is most beneficial to investors and creditors. Investors will buy and sell stock based on their analysis of a company’s past performance to predict future performance. Creditors also use the income statement to predict future earnings (Kimmel, Weygandt, & Kieso, 2009). A bank would not loan money to a company if they thought that the company would not be profitable enough to repay back the loan.
Retained Earnings Statement
The retained earnings statement is an indication of how much previous income was distributed in the form of dividends and how much was retained in the business for future growth and expansion of the company. The time period used is the same as the time period covered in the income statement. The retained earnings statement and the income statement are interrelated in that the beginning retained earnings amount appears on the first line of the statement, and then the company adds net income and deducts dividends to determine the retained earnings at the end of the period (Kimmel, Weygandt, & Kieso, 2009). By monitoring the retained earnings statement, investors can view how much or how little dividends are paid out to the...
University of Phoenix
Accounting
Acc/561
Norsey Dorris
June 22, 2012
There are four financial statements that users view to determine the health of companies, which are the balance sheet, income statement, retained earnings statement, and the statement of cash flows. These statements typically represent the backbone of a company and are viewed for various purposes from investment decisions to projected future earnings to credit risks. Each statement serves a purpose and are analyzed differently depending upon the user.
Income Statement
An income statement reports a business’s revenues and expenses and represents how successful a business has been operating during a specific period of time. Past net income provides information for predicting future net income, which is most beneficial to investors and creditors. Investors will buy and sell stock based on their analysis of a company’s past performance to predict future performance. Creditors also use the income statement to predict future earnings (Kimmel, Weygandt, & Kieso, 2009). A bank would not loan money to a company if they thought that the company would not be profitable enough to repay back the loan.
Retained Earnings Statement
The retained earnings statement is an indication of how much previous income was distributed in the form of dividends and how much was retained in the business for future growth and expansion of the company. The time period used is the same as the time period covered in the income statement. The retained earnings statement and the income statement are interrelated in that the beginning retained earnings amount appears on the first line of the statement, and then the company adds net income and deducts dividends to determine the retained earnings at the end of the period (Kimmel, Weygandt, & Kieso, 2009). By monitoring the retained earnings statement, investors can view how much or how little dividends are paid out to the...