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Posts Tagged balance sheet income statement
Financial Statements: The Financial Roadmap for the External User
An entity must be accountable to their shareholders. In order to achieve this necessary goal, an entity is required to disclose specific financial material to individuals that have an interest in the company. There are four central components involved when reporting on the financial activity of en entity: the balance sheet, income statement, the statement of changes in the owner’s equity, and the cash flows statement. The interplay between these documents constitutes the seamless reconciliation of all economic activity within an entity. This information is externally oriented and is invaluable to the shareholders. It provides a them with a snapshot of an entity’s financial position in a point in time, the profits or losses over a period of time, the change in owners equity over that time, and the sources and allocation of incoming and outgoing monies during that period. This accessibility to critical economic information creates the link between the external user and the entity. It allows for the tracking of historical performance, recognition of financial changes of an entity, and keeps shareholders informed. There is nothing more notably valuable to a shareholder or interested investor than being informed; these documents allow for this by first disclosing a picture of an entity’s financial position in the balance sheet.
The balance sheet or statement of financial position offers the investors information on the financial position of an entity in a point of time. It is a statement that represents the entity’s assets, liabilities, and owner’s equity. The balance or accounting equation (A = L + OE) denotes a balance between both sides of the equation (i.e., the dollar amount of the assets should equal to the liabilities less the owners equity). This summation of the entity’s financial position can be prepared at anytime but is usually disclosed at the end of the fiscal reporting period. The balance sheet works in concert with the income statement and the statement of changes in the owner’s equity.
Quote: accounting equation, assets liabilities, balance sheet income statement, cash flows statement, interested investor, necessary goal, statement of financial position
Users and Uses of Financial Information
In every financial accounting textbook, the authors explain in detail about “Users and Uses of Financial Accounting.” Accounting information such as cash flow statements, income statements, and balance sheets are important documents that are kept to ensure that the company is recording everything correctly. The users of this accounting information are divided into two categories, internal and external users.
The internal users of accounting information are the managers who organize, operate and plan daily business routine. They are directly affiliated with the company and use managerial accounting, which includes in-depth reports used to determine financial strengths and weaknesses. For example, internal users would include management, finance, marketing, and human resources. An example of a human resource manager would be that he or she has to ensure the rights of their employees by using wage information along with other data. Important questions arise with internal users. A question for a marketing manager would include, “What price for an Apple I Pad will maximize the company’s net income?”
Quote: accounting textbook, assets liabilities, balance sheet income statement, business routine, cash flow statements, human resource manager, users of accounting information