Done by: Shannan T.
Week 1 Assignment: Financial Statements
Numbers play a major role in business and to keep track of all of those numbers, financial statements are used. Financial statements are a way of communicating those numbers within the business organization. Financial statements are used as a foundation for decisions that will impact information systems, production, management, and marketing. Any income that a company is receiving needs to be able to cover any of the overhead debt costs such as employee wages, utilities, rent, goods, and supplies. If a company is not in good financial standing, it may not qualify to receive additional loans for expansion or may need to do cutbacks such as laying off some of the employees. All of these aspects are monitored with four basic financial statement reports, which are ...view middle of the document...
Financial statements are vital in business and they all work together to ensure that the business is vital and is continuing to sustain itself and grow. Often times, the financial side of business is delegated to qualified individuals within the company but financial statements are useful to internal users such as managers and employers as well. Managers often use the financial statements to plan ahead for the future of the company. Comparing profits and debts between two different periods of time is a part of their position and aids in future growth of the company. Based on this information, the manager is able to set other goals for the employees and themselves. Employees can use the information especially with labor unions and management to discuss wages, compensation, and promotions. For example, if a company is continuing to increase revenue, the company may be able to offer more benefits to those employees and management for helping them reach that goal or the company may look to investors and creditors to help them grow the company.
Investors and creditors are external operators in a company but are equally important. Investors use the financial statements to assess whether investing funds in to a company is going to be profitable for them, whereas the creditors will use the statements to decide whether or not to extend debt to finance that future growth.
In conclusion, detailed statements are necessary in order to successfully run a business. The financial numbers and statements associated with business are also extremely important to many aspects of the company and not just those hired to work in the financial area of it. The ending balance on a financial statement affects managers, employees, and even consumers.
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Financial accounting: Tools for business decision making (6th ed.). Hoboken, NJ: John Wiley & Sons.