Four Basic Financial StatementsEssay Preview: Four Basic Financial StatementsReport this essayBasic Financial StatementsAccountants, business owners, investors, creditors and employees use four basic financial statements of an organization to determine the financial well-being and future earnings potential of that organization. Financial statements are a key tool in seeing and understanding the past, present and future condition of an organization. What are these financial statements and what do they mean to the reader? Do the financial statements mean something completely different to an investor, creditor, and employee?
The first of the financial statements is the income statement. The income statement states the revenues and expenses in an understandable way that shows a clear picture of net income or net loss for the organization during a specific period. The main purpose of the income statement is to show how profitable an organization is and where there is room for improvement in that profitability. When one reads the income statement, he or she will see the revenues listed first then the expenses of the organization. The last item on the statement is the net loss or net income.
Second is the statement of stockholders equity. The statement of stockholders equity details changes in the investments made by the organizations owners, including stock issuances, stock repurchases, stock conversions, dividends paid, net income or net loss (McGladrey, Pullen, 2006). The third statement is the balance sheet. The balance sheet is a broad look at the organizations standing. The balance sheet shows the assets, liabilities, and stockholders equity for a specific period of time. The assets are listed at the top of the balance sheet, followed by the liabilities and stockholders equity. Assets and liabilities are divided into short-term and long-term. The bottom line of the balance sheet must be equal, which means assets must equal the liabilities and stockholders equity.
Fourth of the basic financial statements is the statement of cash flows. The statement of cash flows is a summary of the cash inflows and outflows in the organization for a specific period. The statement of cash flows shows all the investing transactions, financing transactions, normal cash effects in the organization and the net increase or decrease in cash for the period. Cash flows from operating activities are the normal cash flows of an organization. Statement of cash flows shows readers what activities are normal for the organization and which activities are abnormal. The statement also shows the capability of the organization to pay back debts and what is left to invest for future business growth. Cash flows from investment activities will show the reader which long-term assets have been acquired, and if other business entities have been acquired. Cash flows from financial activities show the reader investments made by owners of the organization. The statement also shows the cash received from a third party in the form of a loan (Mackevicius, Senkus, 2006).
Investors, creditors, management, and employees use these financial statements to see a picture of how the organization is doing. Readers use the balance sheet to determine the financial strength of the organization. The balance sheet can also show the trends of the organization. How quickly is the organization receiving payment on its accounts receivable. Investors in the organization use the balance sheet to make decisions on if the business has a good future and how much credit should be granted to the organization. Readers of the stockholders equity statement use this to see if they are any changes in ownership. If owners have pulled out of the organization and why, and if there are any new owners invested in the organization. The statement of cash flows shows the reader of the statement when and organization obtained cash, how they
and the amount received. The ratio of cash to accounts receivable is the amount of cash the organization has in balance. We use this calculator to view if the organization received the payment.
The numbers in Figure 3 in our financial reports use credit card numbers in the table.
A recent report by ICA, Inc. indicated that the financial services industry has moved away from credit cards to debit card payment terminals. Credit cards with a traditional cardholder ID, like MasterCard, can be used to purchase goods and other personal electronic goods. According to ICA, the industry has grown about 25% in the past several years. The ICA statement of cash flows in this report is based on the reported growth of the credit card, debit card and credit card payments made with the payment terminals.
Figure 3. Cash Flow to Credit Card Payment Terminals with a Traditional Cardholder ID
Figure 3. Cash Flow to Credit Card Payment Terminals with a Card ID
The data from the ICA financial reports are not publicly available. We are prepared to say that the numbers are on paper but, they are subject to change and may change based on new information in the business or in other financial reports, as well as changes in terms. We do not release consolidated or unaudited balance sheets through weaselly or our management have no control over the financial statements reported in the financial reports or the transactions. We did not know of any conflicts of interest reported by companies or individuals with respect to credit card payments made to us or in our transactions within the past 10 years.
Data Sources and Explanations
Business data may be used by business and regulatory agencies to better understand the impact of new rules and regulations in the area of credit card transactions. For example, the consumer’s credit history or other data about transactions is important to an agency or consumer to better understand the impact of new consumer protection laws, which are likely to increase fraud, abuse, and abuse of credit card services. Business and regulatory agencies are working on ways to improve the reporting of payments to consumers through the use of data collected by data analysts and other sources. We use information on credit card transactions, which may include, but are not limited to, the number of transactions occurring and the type and amount of the payment, together with information about how payments are issued, made into credit cards, and are associated with other transactions.
We may provide credit card data to businesses by providing it to financial institutions, as well as our suppliers, who typically request and receive financial information after submitting to our credit cards. Financial institutions do not use their own financial reports and are not required to use credit card information to pay for services that comply with Federal, State, and local tax laws in a way that is transparent, consistent with our accounting principles, and that does not involve the use of personal or confidential financial information. (See “Rights, Privacy, and Conflicts of Interest.” For more information on whether financial reporting is required by law to obtain information from credit card companies about credit card fees or charges, see “Compliance with federal tax laws.”)
We use an aggregate or fractional-based information ratio (BFR) approach to identify financial trends that may occur, for example, across industries. The ratio is calculated as follows:
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