Financial Statements

Financial Statements Paper
Shakisha Jones
September 5, 2011
Gary Foote

Financial Statements Paper

French is the language of people native to France. Accounting is the language that businesses use to converse financially between other businesses, internally and externally to explain their companies’ financial position to investors, creditors, and outside sources, such as auditors and regulatory agencies. In this paper you will learn understand the definition of accounting, identify the four basic financial statements, explain how these statements are interrelated and why they are important to managers, investors, creditors, and employees.
Kimmel, Weygandt, and Kieso (2011) define accounting, “It is an information system that identifies, records, and communicates the economic events of an organization to interested users” (p. 4). Accounting is very important; it explains what is happening financially, at a given point of time to a company. Investors would like to know if the company is operating on a profit, before investing money into the company. For example, if the company is profitable beyond their projected budget, the investor will most likely receive a dividend. Accounting information is important to creditors because a creditor would like to know if the organization applying for credit can pay its bills. External users of accounting information, such as state auditing agencies and governmental regulating agencies want to know that the organization in question is following all the rules. The four basic financial statements are important to internal and external users.
The basic accounting equation provides the groundwork for recording a company’s financial events. Assets equal a company’s liabilities plus its stockholders’ equity and the four basic financial statements come from this information. According to Kimmel, Weygandt, and Kieso (2011), “The income statement reports the profitability of the company’s operation over a specific period...