Financial Statements are known as the backbone of financial accounting. There are four types of financial statements that keep track of assets, liabilities, expenses, and revenues. These financial statements are the balance sheet, income statement, retained earnings statement, and statement of cash flows. This paper will give brief descriptions of each financial statement and reveal which statements are of most interest to investors, creditors, and managers.
The balance sheet is used to reflect what a business owns and owes at a point in time. The income statement includes a company’s revenues followed by its expenses. The retained earnings statement includes payments such as dividends and calculates the net income retained in the corporation. The statement of cash flows calculates cash receipts and payments over a period of time.
Investors and Creditors share interests in income statements, balance sheets, and statement of cash flows. They may have more interest in one than another as follows. Investors are most interested in income statements because it includes information that can be used to predict a company’s financial future. Investors will buy or sell stocks based on the potential performance of a company’s future. An investor wants to see information that reveals a company is profitable. Creditors also use income statements. Creditors loan money with the understanding they will be repaid in the future. If an income statement does not display a positive future, a creditor will not consider a loan.
Creditors are most interested in a company’s balance sheet because it includes information used to determine the likelihood of being repaid. Creditors and Investors will also share an interest of the statement of cash flows because it is a snapshot of a company’s