Question

Discuss the main financial statements you have studied so far in the course (income statement, statement of retained earnings, and balance sheet) and talk about what information is contained on them. Which one do you feel is the most important and why?

Answer 1

Main financial statements are as follows -

1. income statment - Every company prepares a income statement at the end of the year generally, to get the visibility of the income, earning, expenses and loss incurred in a specific range of period. It is important to prepare income  statement because this information helps an organisation to take the right business decision like where should we do the cost-cutting, from where can a business generate more profit and in which part business is suffering the loss.

2.balance sheet - The balance sheet is a statement which states the assets and liabilities of a firm as at a certain date. As even a single transaction can make a difference in assets or liabilities, so the balance sheet is true only at a particular period of time.

3. statement of retained earnings - The statement of retained earnings is the staging point between the income statement and the balance sheet. It shows any deductions from the EAT (such as dividends paid to shareholders) to determine the net amount left over. This amount is left in the company and is accounted for by adding it to the retained earnings account on the balance sheet.

Income statement. The most important financial statement for the majority of users is likely to be the income statement, since it reveals the ability of a business to generate a profit.