Acc 561

Differentiation of Financial Statement
August 13, 2013

Differentiation of Financial Statement
According to Webster Dictionary (2012) edition accounting is a system of recordings and summarizing financial and business transactions by analyzing and reporting of the results. The purpose of accounting is to identify and report the economic activities of businesses. Accounting is comprised of a variety of reports. The reports that are utilized show a lot of pertinent information that includes liabilities, assets, expenses, and revenues, all of which are vital to the end user who are searching for this information. Stated by Kieso,Kimmel, and Weygandt(2009), this information is arranged in four different financial statements, and is thus the basic of accounting”. The four documents consist of the balance sheet, income statement, retained earnings statement, and the cash flow statement.
In order for companies to expand, credit is often needed and secured for this expansion to occur. When banks lend money to companies, they lend with the expectations that the loans will be paid back. Banks through their own due diligence   must first determine that the companies borrowing the money have the where withal to repay the loan. The banks or creditors uses components of accounting format of the income statement, retained earnings, and cash flow statement when making the determination of who to lend money.
 Balance Sheet are used for the reporting of accounts such as liabilities, stockholders equity and the amount of assets of an organization. It allows for the analyzing by creditors to determine how they will be repaid and what assets or products an organization has that could be sold in order in case of default.
 Income Statement display if a company is successful or not. The income statement is used to report the revenues of a company- minus the amount of
expenses. The income statement allows creditors to determine whether a company is...