Running Head: FINANCIAL STATEMENTS
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Financial Statements: Balance Sheets and Income Statements
Amanda Baker
Bellevue University
FINANCIAL STATEMENTS
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Abstract
Financial statements are critical to the health of a business. They provide a glance into
the intricacies of both the day-to-day operations and future endeavors of a business and
are designed to help leaders make thoughtful and strategic decisions well before
financial problems arise. The following highlights the balance sheet and income
statement and provides answers to questions posed in this component’s lesson.
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Financial Statements: Balance Sheets and Income Statements
What is the total dollar amount of assets and where did you find this information?
Identify some of the assets listed and explain what these assets represent.
Current assets are assets that will likely be will be exchanged for cash in the near
future. An example of a current asset is accounts receivable which means goods have
been provided to the customer, however the company has not yet received payment.
Because the company expects to receive payment in for those goods within a year, this
asset is reported as current.
Fixed assets include items that are intended for business operations and will not
be sold at least for a year. Because fixed assets such as buildings, equipment, and
furniture will depreciate over time, the depreciation amount must be accounted for on
the balance sheet and its value is reported as net book value (value after depreciation).
For instance, if the printer is used in the accounting department for multiple print runs
daily, over time the printer will wear out and need to be replaced. When this asset is
recorded on the balance sheet, the depreciation value over time must be taken into
consideration.
Other assets include miscellaneous assets that cannot otherwise be categorized
with current and fixed assets such as other leases or other assets that have been paid
in advance, but have not yet expired.
What is the total dollar amount of liabilities and where did you find this
information? Identify some of the liabilities listed and explain what these
liabilities represent.
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The total dollar amount of liabilities is $3,127. This information is also found on
the balance sheet. The liabilities represented on the balance sheet are current liabilities
– debt that is payable within one year and long-term debt which is money owed by the
company and paid over a specific longer termed period.
What is the ending retained earnings balance and where did you find this
information? What does this retained earnings represent?
The retained earnings of $375, a part of stockholder’s equity, is found on the
balance. Retained earnings represent income that has accumulated but has not been
redistributed. It is used to reinvest in the company or pay debt. (Investopedia).
What stockholders' equity accounts are included and on the balance sheet?
Preferred Stock – a less risky stock that is paid out to preferred shareholders before
ordinary shareholders are paid.
Common Stock ($10.00 par, 100,000 shares outstanding) – shares entitled to profits
once all other costs have been incurred.
Paid-in capital in excess of par on common stock – the amount a company receives
when it issues shares of stock.
Retained Earnings – accumulated undistributed income
What is the total dollar amount of revenue and where did you find this
information? Explain what is included in the revenue of this company.
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The income statement shows the total operating revenue for XYZ Company as
$2,575 and consists of money that the company has made before the cost of goods
sold have been deducted.
What is the total dollar amount of expenses and where did you find this
information? Explain what is included in the expenses of this company.
The total operating expenses of $675 and total interest expense is $60. This total
of $735 in expenses is located on the income statement. Expenses include operating
expenses such as selling, general and administrative, depreciation, and fixed while
interest expenses refer to interest paid on short-term and long-term notes.
Which financial statement do you personally feel gives you the most information?
Why? Your response to this specific question should be at least 100 words.
Both the balance sheet and income statement play an integral part in providing a
snapshot of the financial health of a company. In determining which of the two
statements provide the most information, it is important to first discuss the purpose of
each statement and provide an overview of what each statement offers.
Balance Sheet
The balance sheet highlights assets, liabilities and investments of a company and it
focuses on long-term benefits for the business such as equity payment received by the
company or money paid out for equipment that will yield future returns.
Income Statement
The income statement focuses on revenue and costs currently being incurred and
shows whether a company has profited or taken a loss. This statement provides an
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operational glance and can be used to help company leaders identify and address
possible issues early on.
From a strategic point of view, the balance sheet provides the most information.
Leaders are tasked with forming a long-term strategy and because the balance sheet
focuses on future benefits, this would be an ideal report for strategic planning. However,
a company’s success is dependent on its profitability. Leaders, shareholders, and
stakeholders alike want to ensure that a company is profiting rather than taking a loss.
The income statement provides a straightforward snapshot of money going in and
money going out.
All financial statements including the balance sheet, income statement, and cash
flow statement, must be used in tandem to provide an overall picture of the company’s
health while providing the necessary warnings for leadership to address problems
before they start, or at least, before they become too large to resolve.
FINANCIAL STATEMENTS
References
Libguides. (nd). Articulation of financial statements. Retrieved from
http://libguides.bellevue.edu.ezproxy.bellevue.edu/c.php?g=148579&p=976032
Tennent, J. (2008). Guide to financial management. Retrieved from
https://flexxive.bellevue.edu/bbcswebdav/pid-197847-dt-content-rid293687_1/courses/FBUS335XL02_2157_M01/Guide%20to%20Financial%20Management%20C2P1.pdf
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