1. Running head: ABOUT FINANCIAL STATEMENTS
About Financial Statements
Edward Charfauros
Principles of Accounting ACC/280
January 17, 2012
Kurt Meyer
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Financial Statements
Financial statements provide historical records reflecting a business, individual, or
organization’s financial status. Usually, financial statements relate to business ventures
remaining as analysts and investors primary source for financial information. This paper
provides information about financial statement basics and general accounting principles. A
majority of information within financial statements are corporate finance and valuation.
Accountants attempt to measure an organization’s current standing to its immediate past
performance, and financial analysis provide forward projection.
The Four Primary Financial Statements
The four basic financial statements in accounting report financial data in affective and
economical methods. According to the beginners' guide to financial statements on the United
States Securities and Exchange Commission (SEC) website (2012), “there are four main
financial statements. They are: (1) balance sheets; (2) income statements; (3) cash flow
statements; and (4) statements of shareholders’ equity” (Show me the money! section, p. 1, para.
2).
Accounting balance sheet (or statement of financial position) is an important financial
statement accountants and businesses use. Balance sheets delineate business’s current financial
circumstance, income statements inform revenues and costs, cash flow statements depict cashequivalents and changes, and retained earning statements provide equity changes throughout a
time frame.
Using balance sheet financial statements provide apprehension into organization’s debts,
assets, and shareholder equity during a notable time frame. Usually company’s lists its assets
along the balance sheet’s left side, along the right side list liabilities and debts. However, along

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the top of balance sheets lists assets, within the middle list debts, and along the bottom of the
sheet list shareholders’ equity.
Organization's balance sheets present the financial position upon the end of specified
dates. The balance sheet provides an organization "snapshot" of its financial position at a given
point (an instant or moment) in time. Because the balance sheet informs people of a moment in
time of an organization's financial position by date indication along the sheet heading, the sheet
allows people such as creditors to review organization’s assets and liabilities. This valuable
information assists bankers to determine if an organization qualifies for additional currency
lending and credit. Additionally balance sheets inform clients, customers, competitors,
government agencies, investors (current and potential), labor unions, management, and suppliers
on an organization’s status.
Using income financial statements provide an organization’s revenue earnings during a
specific time frame. Additionally income statements reflect secure income from organization’s
expenses and shareholder share earnings. Along the bottom portion of the income statement
displays the total earnings, losses, and often providing an annual record of revenue.
The income statement is a financial document that measures the financial performance of
an organization throughout a specified accounting period. The financial performance
summarizes how organizations incur expenses and revenue through operations and
nonoperational activities. Moreover, showing net profit or accruing losses throughout a specific
accounting period, which is usually throughout a fiscal quarter or annual period.
Statement of changes in equity is a financial document that links the owner’s equity
amount within a business from the start of an accounting period to the end period. The statement
of changes in financial position reflects a particular end period of accounts. The statement of

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changes in owners' equity provides information from both statement of changes in equity and
statement of changes in financial position.
Since 1987, the cash flow statement continues to complement the balance sheet and
income statement for organizations as a vital portion for financial reporting, recording cash
amounts, and cash equivalents entering and exiting an organization. The cash flow statement
allows investors to comprehend how organizations operate, derive its income and how it spends.
Additionally organizations use cash flow statements for business analysis.
Defining Accounting
Accounting is about individual and organization accountability. Defining accounting can
be broad in application and businesses. According to the University of North Carolina
Wilmington’s website (2012), “the American Accounting Association defines accounting as the
process of identifying, measuring and communicating economic information to permit informed
judgments and decisions by users of the information” (What is Accounting section, para. 1).
This definition suggests that accounting provides people vital economic information relating to
the economic and financial activities of organizations.
Accounting identifies and communicates the necessity for accounting information.
Communicating the need for accounting information varies through several different ways using
accounting communication methods such as accounting reports. The need for accounting
information requires comprehension prior to attaining accounting information. The majority of
organizations are accountable in one form or another for activities and actions taken.
Organizations produce reports based on activities that reflect organizational objectives and
direction.
Two vast classifications of accounting information exist: financial accounts and

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management accounts. Financial accounts aim accounting information toward external users.
Management accounts aim accounting information toward internal users. Although the type of
information reflecting from financial and management accounts differ, the underlying
information satisfies the user’s information inquiries.
Double-entry bookkeeping is an accounting system base on a set of accounts that
identifies and measures accounting information and records information as accounting
transactions. Measuring accounting information can be a complicating process involving
judgments concerning organization’s ownership of assets and liabilities. Double-entry
bookkeeping accurately measures how much an organization loses or profits within a particular
period and frequently demands subjective judgment for a conclusion.
Conclusion
Balance sheets show entity assets, stockholder equity, and liabilities according to report
date. Income statements show results of an entity’s financial activities and its operations
according to reporting period. Cash flow statements show entity's cash flow changes during a
reporting period.
Everyone is capable of preparing a financial statement, although majority of
organizations employ accountants to do the work. Accountants are able to discover
discrepancies and communicate benefits that experts only can help with such as avoiding
taxation, increasing an organization’s image, or allowing an organization to financially worsen.
Accounting and financial knowledge remains important because comprehending these
disciplines provide the necessary tools to manage organization decisions effectively. Successful
operations remain accountable when managing organization finances.

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References
University of North Carolina Wilmington. (2012). Accountancy. Career center. Retrieved from
http://uncw.edu/career/accountancy.html
United States Securities and Exchange Commission. (2012). Beginners' guide to financial
statements. Retrieved from http://www.sec.gov/investor/pubs/begfinstmtguide.htm

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References
University of North Carolina Wilmington. (2012). Accountancy. Career center. Retrieved from
http://uncw.edu/career/accountancy.html
United States Securities and Exchange Commission. (2012). Beginners' guide to financial
statements. Retrieved from http://www.sec.gov/investor/pubs/begfinstmtguide.htm