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Basic financial statements and their uses

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Hemanth R.
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case study
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Companies should prepare these 4 basic financial documents at the end of every financial period. Balance sheet shows the information about what a company owns and owes at any point of time. Profit & Loss Statement shows the information about company earnings and expenditures in a specific period. Cash flow statement shows the information about exchange of money between the company and any other out side third parties. The final statement, statement of retained earnings, which is also called as statement of shareholder's equity, shows information about changes in shareholder's equity account during a financial period.

All these statements should be prepared according to the guidelines of the accounting regulatory. For instance, companies located in United States of America need to follow the guidelines of Generally Accepted Accounting Principles (GAAP) where as companies in Europe follows the rules of International Financial Accounting Standards (IFSA) (Barry & Jermakowicz 2007). These statements will help stakeholders of the company in many ways. Companies need to show the supporting documents such as agreements, purchase copies to the regulatory bodies while reporting the financial statements.

[...] Financial statements help managers or top management of the company in many ways. Unless a top management knows about the financial performance of the company in last financial period, it is not possible for them to take informed decisions to draw the strategies for next financial period. This is where managerial accounting statements or financial statements come into picture. Top management will look into retained earnings, liabilities and liquidity of the company while taking the decisions. Discuss how the financial statements would be useful to external users, such as investors and creditors? [...]


[...] The purpose of financial statement varies from person to person. The balance sheet discloses information on assets, liabilities and stock holder's equity. Assets section will show the information about both tangible and intangible things. Tangible things include plant value, machinery value and inventory value. Intangible things include patents and trademark values etc. In a nutshell, assets section will give information on investments of the company. Liabilities section show information about the accounts a company owe to others. Liabilities include office rent, bank loan and taxes. [...]

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