Question

Explain in your own words why the four financial statements (balance sheet, income statement, statement of owners' equity, and statement of cash flows) all are critical for accountants and nonaccountants to understand. Provide an example to illustrate how the information might be used differently by accountants and non accountants. Include discussion on the value of these statements when analyzing a company to assess both the financial and the nonfinancial information.

Answer 1

1. Financial statements conveys the financial position of a company.
2. The financial situation of a company at a given point of time is known by using the financial statements.
3. The balance sheet provides a snapshot of an entity as of a particular date. It list the entity's assets, liabilities, and in the case of a corporation, the stockholders' equity on a specific date. The income statement presents a summary of the revenues, gains, expenses, losses, and net income or net loss of an entity for a specific period. This statement is similar to a moving picture of the entity's operations during this period of time. The cash flow statement summarizes an entity's cash receipts and cash payments relating to its operating, investing, and financing activities during a particular period. A statement of changes in owners' equity or stockholders' equity reconciles the beginning of the period equity of an enterprise with its ending balance.
4. Accountants can perform the analysis of financial statements and draw conclusions as to the performance of the company, whereas non accountants will gain information as to the financial position, net profit for the period and compare with previous periods.
5. Financial statements as the name itself says it is related to financial things, management takes decisions as to the performance of the company based on the financial analysis of the financial statements, therefore these statements are mandatory for management in order to take decisions for future well being of the company.
6. These statements stand as a base for tbe investors to take decisions as to investing in the company, banker whether to issue loans to the company and suppliers whether to do business with the company. This shows the importance of financial statements in financial information.
7. Non financial information is also very vital fir the decisions of various stakeholders.