Chapter 2, Problem 2BTN

To determine

Concept Introduction:

There are 4 types of financial statements named as - Income Statement, Retained Earnings Statement, Cash Flow Statement and Balance Sheet.

These statements are helpful in evaluating the financial status of the business and are interrelated. They help in knowing the financial position and liquidity of the company and also highlight the solvency position of the company.

The importance of the Financial Statements

Answer:

MEMORANDUM

To: Lila Corentine

Subject: Financial Statements Explanations

The four major financial statements that will suit the business are −

Income Statement − It describes the revenues and expenses of the company within an accounting period and helps in ascertaining the net income or loss.

Cash Flow Statement − It indicates the inflows and outflows of cash through various business activities which are divided among three headings - Operating activities, Investing activities and Financing activities.

Balance Sheet - It describes the financial position of a business at a particular point of the time. It reveals the balances of Assets and Liabilities on a particular date.

Statement of Retained Earnings − It explains the change in the retained earnings due to the change in the net income or loss and because of the dividend declared and paid during the particular period of time.

These statements are interrelated and will help in knowing the financial position of the company. It can also be used for the comparative analysis. It can be used for comparing the result of one accounting period with another as well as with the results of other related companies.