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  • Date Submitted: 09/17/2012 06:11 AM
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What are the four basic financial statements? What is the primary purpose of each of the four basic financial statements? In your opinion, which financial statement is the most important? Explain why.
The four basic financial statements are income, retained earnings, balance, and statement of cash flows. Financial statements provide a means for the business to judge the results of their operational or financial performance over a period of time. Income statements provide investors and the business a description of how profitable the business is performing within a specific period in time. Retained earnings are income that is left in the company (reinvested) that was not distributed to the stockholders. This statement explains why the retained earnings increased or decreased during a specific period in time. Balance sheets relay the financial status of the business at a specific period in time. The balance sheet lists the business assets, liabilities, and stockholder equity or assets = liabilities + stockholder equity. Statement of cash flows shows the gross receipts and gross payments or liquidity, over a specific period in time. These transactions include cash effects of operations, investing transactions, net increase / decrease, and the cash ending amount.
The financial statement that I feel is most valuable is the statement of cash flows. This statement is just an inflow and outflow report of where the business stands. This statement allows lookers to understand how well / not well operations are performing and it shows where money is coming in and going out.
References
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Financial accounting: Tools for business decision making (6th ed.). Hoboken, NJ: John Wiley & Sons.
University of Phoenix. ( 2011). Week One Supplemental notes: four basic financial statements. Retrieved from University of Phoenix, ACC290 - Principles of Accounting I website.

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