Financial Statements Paper

Financial Statements Paper
Since its beginning in 1494, accounting has served the same purpose; to identify, monitor, and report economic activities of an organization.   In order to do this, accounting personnel use for basic financial statements; income statements, retained earnings statements, and balance sheet reports.   All of these reports are interrelated with each other.   These reports are useful for various groups, including management, investors, creditors, and employees.
Purpose of Accounting
In 1494, Luca Pacioli wrote Summa de Aritmetica, Geometria, Proportione et Proportionalite, in which he describes a system to make sure that all financial data is recorded efficiently and accurately.   This system is largely thought to be the origins of accounting as we know it today.   The purpose of accounting is that it “identifies, records, and communicates the economic events of an organization to interested users” (Weygandt, 2008, P. 4).   The first step of accounting in an organization is to determine which economic events are relevant to its business.   This can consist of sales, services provided, wages paid to employees, and more. Economic events within an organization are then recorded in a systematic and chronological system to maintain a history of financial activities.   This information recording function of accounting is generally known as bookkeeping.   These recorded events are then filtered into different reports, which are used to communicate this information to the interested parties.   Correctly analyzing and interpreting economic events is a vital portion of an accountant’s job.
Financial Statements
Most companies utilize four basic financial statements from the economic activities they identify and record.   These statements are income statements, retained earnings statements, balance sheets, and cash flow statements.   Each of these reports has a different purpose and function in an organization.   An income statement show how much revenue a...