Financial Statements
Financial Accounting has been one of the more difficult courses I have taken at West Chester University
. During the class I found the material irrelevant to me at the time, but now, after working in a managerial position, I realized how important accounting is to the real world of business. The concepts I used most from this course was using a trial balance, and then from using the trial balance, I could easily prepare Financial Statements, such as a balance statement, income statement, statement of retained earnings, and statement of cash flows. Out of the four financial statements, a balance sheet is the only statements referring to a point in time, not over a period of time. From these statements one would be able to tell the company its net income, retained earnings, and the flow of cash entering and leaving a company. Financial statements are important because they easily, and simply show the financial position, and the performance and changes of a business. This allows a lot more people make better informed economic decisions of what to do with their business. Financial statements for bigger companies are often very difficult to understand because they are extremely intricate. Big companies usually leave notes explaining the financial statements. They explain things such as describing items on the various statements. Financial statements supply data about the economic state, fulfillment and adjustments about an enterprise. I plan on discussing how to basically; prepare a trial balance, an income statement, and statement of retained earnings; so that anyone in the working world can see how well their business is doing, and help better one's understanding of these statements.
First I will start off with creating a trial balance, it is just a list of accounts and their balances at a point in time. To create a trial balance, one must list the account title and the amount in the account in ledger form. Next, total the debit balances and same with the credit balances. After totaling the debits and credits, make sure that the total debit balances equals the credit balances. The trial balance easily allows one to calculate statements that show what is actually happening with the money of a business.
Then from that, one makes an Income Statement. An income statement is used to show the revenues earned by business less the expenses incurred over a period of time, this shows a business its net income. So from the trial balance, one chooses all of the revenue accounts, and totals them. Then one takes all of the expense accounts and totals them. From there, one would take the revenue less the expenses, and that shows Net Income. Investors and creditors can use an income statement to discover preceding financial performance of a company, and also know what to anticipate for future performance.
From creating an Income statement, one would now be able to construct a Statement of Retained Earnings. This reports data about how retained earnings changes over the reported period. To create a statement of retained earnings, first take the retained earnings from the period prior, and then add the Net income from the Income statement. From there one would subtract the dividends from that and the result is the Retained earnings of the current period. The equation is easily shown by Ending Retained Earnings equals Beginning Retained Earnings less Dividends Paid plus Net Income. After creating a statement of retained earnings one would create an ending balance statement.
A balance sheet is the sum of financial balances of a company. A balance sheet has three parts to it. It has assets, liabilities, and ownership equity. To create a balance sheet one easily can compute the information by using the equation: Assets equals liabilities plus owners equity. The balance sheet should equal out.
From these statements a business is able distribute this material into the hands of the right people, whom then can analyze the company and see what the company gets to keep after all accounts are settled. Also, one would be able to see in the retained earnings to see the total earnings of that period, but usually the retained earnings show money that has been invested into the company. From learning how to use and make these financial statements, With these concepts I have applied this to my personal life. I have used a balance sheet to balance out my checking and savings accounts, making it easier to manage my finances.
Financial Statements
By: Elliot Krass
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