Financial Statement Paper

824 words - 4 pages

Financial Statements paper
September 22, 2011

Financial Statements paper
Accounting is an action needed by companies in business. Without accounting and the knowledge of the inner workings of financial statements, a business is doomed to failure. In accounting there are four basic financial statements used for an array of reasons.
The first financial statement in accounting is the balance sheet. The balance sheet is used to represent an illustration at a point of what a business owns and owes; these are also known as assets and liabilities (Kimmel, Weygandt, & Kieso, 2011). The next statement used is the income statement. The income statement displays just how ...view middle of the document...

Internal users of financial statements are people who have direct dealings with an organization like owners, managers, and employees. To operate a business smoothly owners and managers must rely on these financial reports. These reports are vital to making important business decisions. Owners and managers use these reports because they provide a more all-around view of the organization’s financial position. The current debt to equity ratio is a variable of the financial statement it is very important when deciding the amount of long-term capital needed for investment. Businesses may find difficulty in deciding which fields they want to invest, and looking at another companies financial statements can be used to determine whether investment resources should be used there or not (, 2011).
Owners and managers are not the only internal users of financial statements; employees too have uses for them. Employees may use financial statements for different reasons among these are making collective bargaining agreements, discussing promotions, and fair salaries (, 2011).
As stated previously there are two types of users of financial statements, and the second is the external user. These users consist of creditors and investors. A company has to be accountable to their shareholders. The way this is achieved is by being required to reveal specific financial material to people who have a stake in the company (Kimmel, Weygandt, & Kieso, 2011).
Ethical financial practice at one point was questioned because of several financial scandals like Enron and AIG. These scandals led to the Sarbanes-Oxley Act (SOX) passed by Congress in 2002. This act would...

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