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In: Accounting

Think about the different types of financial statements you learned about in this unit (the income...

Think about the different types of financial statements you learned about in this unit (the income statement, statement of retained earnings, balance sheets, and statements of cash flow). If you were an investor, would you place more emphasis on any one particular financial statement? Why, or why not?

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Expert Solution

Financial Statements are the summary of all the financial transactions made by the company. There are mainly four types of financial statements. They are as follows

1.         Statement of Financial Position: - It is known as Balance sheet in common terms. It reflects the assets and liabilities of the company.

2.         Statement of Income or Income Statement: - It Shows the Profit or Loss made by the company in its business operation.

3.         Statement of Retained Earnings; It shows the actual income the company has earned after paying the dividend.

4.         Statement of Cash flows: - It shows the changes in cash due to outflows and inflows of cash.

If I were investor I would not place an emphasis on any one particular financial statement, rather I will emphasis on all four financial statements as all financial statements are interlinked because the balance of one statement goes to other statement. Therefore, without completing Income statement we cannot prepare Retained Earnings Statement and the balance of retained earnings goes to Balance sheet .Cash flow statement is prepared both with the help of Income statement and Balance sheet.

ekkarill92 answered 2 years ago
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