Question

Your client, Mary Barnhart, wants to open her own business. She is having difficulty understanding the purposes of financial statements and how they fit together across time. REQUIRED: Write a one-page letter to Ms. Barnhart explaining the purposes of the income statement, statement of owners' equity, and the balance sheet and how they are linked. Use the attached example for guidance.

Henry Whiteapples

123 Maple Street

Columbus, OH, 45888

December 21, 2004

Dear Mr. Whitebridge,

I understand you are concerned about the Statement of Cash Flows and what it means.

The Statement of Cash Flows is one of four important financial statements for every business. It provides details about the sources and uses of cash during a fiscal period (month, quarter, or year). There are three sections to the Statement of Cash Flows: Operating Activities, Investing Activities, and Financing Activities. The Operating Activities section provides details about cash receipts and payments for day-to-day operations. The Investing Activities section provides details about cash receipts and payments for long-term assets and the Financing Activities section provides details about cash receipts and payments for debt (long-term borrowing) and equity (stock) transactions. The total on this statement is equal to the cash account balance on the Balance Sheet for the same period.

I hope this explanation helps you better understand the Statement of Cash Flows. Please feel free to contact me if you have additional questions.

Sincerely,

Kelsey Sioen

Answer 1

Barnhart

123 Maple Street

Columbus, OH, 45888

December 21, 2004

Dear Ms. Banthart

I understand you are concerned about the financial statement (income statement, Balance sheet & Statement of shareholders equity

The Income Statement is one of four important financial statements for every business. It provides details about the details about the sources of revenue and heads where expenditure are made. it provides the end results in the form of Net profit or income during a fiscal period (month, quarter, or year). Income statement also provide details of various kind of expenditures incurred during the period and excess of total revenue over the expenditure. Another important component of financial statement is balance sheet, it provides details about the financial position of the company on a particular date. Balance sheet is divided into two parts (1) Assets, which provided the position and classification of assets into current assets, non current assets and intangibles. (2) Liabilities and shareholders equity which provides the details of total liabilities of the company and position of investors or shareholders funds on a particular date. Another important component of financial statement is statement of shareholders equity, this section provides the details of investment made by various category of stock holders like common stock holders, preferred stock holders, amount of free profits held by the company and any kind of treasury stock purchased by the company during the period. This statement provides the details and information of shareholders share in the company. Statement of shareholders equity is a part of balance sheet and it is shown under the head of Liabilities and shareholders equity. it is prepared separately to show the position of shareholders funds in detail

I hope this explanation helps you better understand the financial Statement . Please feel free to contact me if you have additional questions.

Sincerely,

Kelsey Sioen