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Financial statements in corporations - Term Paper Example
Finance & Accounting
Pages 2 (502 words)
One of the most important financial reports prepared by corporations is the financial statements. The four financial statements are the income statement, balance sheet, statement of retained earnings, and statement of cash flow (Weygandt & Kieso & Kimmel)…
The financial statements are prepared at the conclusion of the accounting cycle. The normal accounting cycle is for a period of one year. Publicly traded corporations are mandated by the Securities and Exchange Commission to release an annual report each year which among other things it must contain the financial statements of the firm. Most public firms publish financial statements each trimester. Ever since the creation of the Sarbanes Oxley Act the financial statements of public firms must be audited by an independent auditor. This act also raised the accountability of the statements by making the executive officers including the CEO liable in case of fraud. The income statement is a financial report that analyses the profitability of a firm. The income statement at the top shows the revenues a firm generated during an accounting period. Revenues are the most important metric for companies because they provide the money that is used for operating expenses and other business costs. The last output of the income statement is the net income generated by a company. Users of financial information pay close attention to the income statement because this report provides information regarding the operating results of a firm including whether a company had gains or losses. When a company has net losses for more than one accounting period the firm may run out of business and file bankruptcy. All financial statements including the income statement are prepared by accountants following the generally accepted accounting principles (GAAP). ...