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Financial statements paper - Essay Example
Author : cwolf
Finance & Accounting
Pages 3 (753 words)
Accounting is one of the most important branches in business administration. The term accounting can be defined as an information system that identifies, records, and communicates the economic events of an organization to interested users (Weygandt, Kieso, Kimmel, 2002)…
The financial statements must be published in the annual report of publicly traded companies. The four financial statements are the income statement, balance sheet, statement of retained earnings, and the statement of cash flow. The income statement is a financial report that measures the profitability of a company. The first number reflected in the income statement is the total sales or revenues. Sales are very important because they are used to pay for the expenses of an organization. The cost of goods sold is subtracted from revenues to arrive at the gross profit. Gross profit is a broad measure of the profitability of a firm. The list of expenses of the firm is tabulated in the bottom part of the income statement. These are subtracted from gross profit to arrive at the net income. Net income measures the absolute profitability of an enterprise. An income statement calculates net income for a financial period which typically covers one year. Companies make money when its revenues exceed its expenses. The balance sheet is considered a statement of the financial position of a company at a specific point in time. The three main components of the balance sheet are assets, liabilities, and stockholder’s equity. The basic accounting equation states that assets equal liabilities plus stockholder’s equity (Quickmba, 2013). ...