Question

Describe the four financial statements. Discuss the purpose of each financial statement and how one financial statement is related to the other.

please use a different answer than what's on the Chegg database and type out instead of writing for easy reading, thank you!

Answer 1

Four Financial Statements:

1. Income statement
2. Statement of Retained Earnings
3. Balance Sheet
4. Statement of Cash flows

Purpose:

i. Income Statement: It helps to know the Income or loss for the current period.

ii. Statement of Retained Earnings: It represents

• Total balance of net incomes(Losses) which are undistributed in the past years
• Net income(Loss) of the current period and
• Any Payouts say, dividends.

iii. Balance Sheet: It represents the Position of the business. Say,

• Assets
• Liabilities and
• Equity.

iv. Statement of Cash flows: It shows Total cash inflows and outflows from different activities Say,

• Operating activities
• Investment activities and
• Financing activities

Relationship:

'Income Statement' is useful to prepare the 'Statement of Retained earnings' as it requires net income for the current period.

'Statement of Retained earnings' is useful to prepare the 'Balance Sheet' as it requires Retained earnings ending balance.

'Cash flow statement' will provide the cash balances to the 'Balance Sheet'.

Simply,

'Balance Sheet' is depends up on the 'Statement of retained earnings' & 'Cash flow statement'; 'Statement of Retained earnings depend up on the 'Income Statement'.