In today’s society, businesses and organizations complete various financial statements that will inform management, creditors, and investors of its financial status. Corporations complete financial statements, such as the income statements, balance sheets, retained earnings statement, and statement of cash flows on a monthly or annually basis. Financial statements must indicate true, accurate, and precise information according to the rules and regulations mandated by the United States of America government. Management, creditors, and investors review the financial statements that will provide him or her with precise information to answer his or her questions.
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Businesses and organizations develop a balance sheet to identify a business or organization’s assets, liabilities, and stockholder’s equity. “The balance sheet presents the company’s financial position as of a specific date” (Kimmel, 2009, p. 14). When developing a balance sheet the business or organization would list its assets first then its liabilities and stockholders’ equity. The assets of a business or organization are resources the company has purchased to conduct business such as, furniture, property, and equipment. A company’s liabilities is it obligations to creditors and vendors. The stockholders’ equity consists of two components, the company’s common stock, which is the new shares of stock the company sold and retained earnings. The retained earnings are the portion of the net income the company retained (Kimmel, p. 10, 2009). The balance sheet would be of most interest to management and creditors. The balance sheet would be of most interest to creditors because the balance sheet enables the creditors to ascertain a business or organization’s ability to pay its financial obligations. Managers review the balance sheet to determine if the business or organization cash on hand is sufficient and determine the relationship between debt and stockholders’ equity (Kimmel, p. 15, 2009).
Retained Earnings Statement
Businesses and Organizations retain income for future operations. The retained earnings statement identifies how the earnings retained in the company increase or decreased (Kimmel, p. 13, 2009). Business and organizations develop a retained earnings statement for the same period as the income statement. When developing a retained earnings statement corporations adds the net income or subtracts the net loss, retrieved from the income statement and deducts the dividends from the beginning retained earnings to determine ending retained earnings for the specified period of time. A...