There are four main financial statements that provide important information to both internal and external users of a business. The income statement shows revenues and expenses over a period of time, the retained earnings statement shows changes in equity from net income or losses, the balance sheet outlines assets and liabilities at a point in time, and the statement of cash flows shows cash inflows and outflows. Understanding these financial statements helps managers make good business decisions, reassures employees, and allows investors and creditors to assess risk and the financial health of a company.

1. Running head: FINANCIAL STATEMENTS 1
FINANCIAL STATEMENTS
PATRICK MITCHELL
XACC/290 PRINCIPLES OF ACCOUNTING 1
OCTOBER 12, 2014
RICHARD FIELDEN

2. FINANCIAL STATEMENTS 2
FINANCIAL STATEMENTS
There are four financial statements that can help you run your business smoothly. They
are: (1) income statement; (2) retained earnings statement; (3) balance sheet; and (4) statement of
cash flows. Income statements will show how much money a business have generated over a
certain period of time. Retained earnings statements shows the equity from the net income or a
loss from the owner’s withdrawals and investments over a certain length of time. Balance sheets
show what is owned by the company and what it still owes from a fixed point of time. And last
financial statement is statements of cash flows will show how money is exchange between the
company and outside the company. When you have changes in assets and liabilities on the
balance sheet show the revenue and expenses from the income statement. This is the company’s
gains and losses. The cash assets from cash flow give more substantial information. This can also
be found on your balance sheet to show income on your income statement. As we can see all the
information combine is very important to investors and their company.
I believe it is very important for internal users such as managers and employees to know
and understand what is going on in the company financially. Managers need Financial
Statements so they can manage the company business by understanding the performance and the
position financially of the company. This will help them make smart business decisions when it
comes to their overall business. Employees need Financial Statements so they can see the
profitability of the company. Employees seem to be comfortable with their jobs when they see
money being generated from the company. This give them a positive reinforcement for job
security.
Investors and creditors like to know where their money is going and is it a wise
investment to help the company make money. This is their role as external users. Investors need

3. FINANCIAL STATEMENTS 3
financial statements to see if it is worth investing in a company. They will try and predict the
dividends based on profits that are disclosed in the financial statements. They will also use this
information to check the risk levels before investing. Creditors use Financial Statements to
decide whether to grant a loan or credit to a business. Financial institutions assess the financial
health of a business to determine the probability of a bad loan. Any decision to lend must be
supported by a sufficient asset base and liquidity.