Financial Statement Differentiation

Financial Statement Differentiation
Vaughan Thompson
ACC/561: Accounting
March 4, 2013
Venetia N. Pitts, MBA

Financial Statement Differentiation
It is difficult to envision investors, creditors, and management making informed decisions sans accurate financial information. Consequently, organizations should use financial statements to communicate their financial stability, cash flows, and operational results with external and internal users. The purpose of this paper is to explain information contained in each of the four financial statements and discuss reasons each statement is of interest to investors, creditors, and management.
Literature Review
Literature review identified four primary financial statements the accounting process creates. They are the income, retained earnings, balance sheet, and cash flow statement (Kimmel, Weygandt, & Kieso, 2009). According to Albrecht, Stice, Stice, and Swain, (2008), each statement has a unique purpose and interrelates with the others. To decipher a company’s complete financial picture, stakeholders should understand how each statement influences the next (Financial Accounting, 2011).
The Four Types of Financial Statements
Generally accepted accounting principles (GAAP) require publicly held organizations show their earnings, owner investments - distributions to owners, financial position, and cash flow for a given period (Financial Accounting, 2011). The financial statement that satisfies each of the aforementioned (in order) is the income statement, retained earnings statement, balance statement, and statement of cash flows (Albrecht et al., 2008).

Income Statement
The income statement tells if a business operated at a profit or loss (net income) during a reporting period by subtracting expenses from revenues. Said statement also reports gains and losses resulting from non-operating activities, which differ from daily operational activities that generate revenue and expenses. Net income from this...