Finance For Executives
Final Paper
Cindy Humphrey
Financial Accounting Statements
Financial accounting statements are summaries of monetary data about an enterprise and are used to make informed decisions in the present and the future. They show the effects of transactions and other events by grouping them into classes according to their economic characteristics.
There are three basic financial statements which are the balance sheet, the income statement and the cash flow statement. The statements can be used by private individuals, non-profit organizations, manufacturers and service industries. The three major groups that take advantage of usefulness of financial statements are large corporations, investors and the government.
Financial statements play a big role in each of these groups financial decisions. Corporations decide how much credit to extend to customers and how much should be distributed to investors in dividends. Investors use a company's financial statements to decide whether or not it would be an advantage to invest their money, and if so, how much. The government uses financial statements to determine how much has to be paid in taxes.
Each decision doesn't always require the same financial statement. A balance sheet would be used in the decision making process for assessing a firm and determining a customer's credit limit. It gives the user data about resources that are available as well as the claims to the resources. An income statement would prove useful in determining credit extension to customers, distribution of dividends, taxes and investment opportunities. It gives the user data about the profitability of the company detailing sources of revenue and expenses that ...