Explain how they are interrelated with each other, and why they are useful to managers, investors, creditors, and employees.
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Four basic financial statements are Balance sheet, Income statement, and statement of retained earnings and statement of cash flow.
Meaning of Balance Sheet:
1. Balance sheet shows the financial position of the company on a particular date usually at the end of the particular financial year. Balance sheet lists the amount of fixed assets, current assets, investments made by the company, amount of shareholders' equity, long term debt and current liabilities of the company.
2. Income statement shows the financial results of the company for the particular financial year. It shows the profit or loss made by the company during the particular financial period (usually one year). It shows the operational efficiency of the company. If the income statement shows net profit, then it indicates that the management is efficient in running the business and if the income shows the loss then it indicates that the company did not do well in the said period.
3. Statement of retained earnings shows the amount of profit accumulated during previous years which are retained in the business, the amount of profit earned during the particular financial year and the amount of dividend paid during the year. It is the part of shareholders' equity.
4. Statement of cash flow shows the movement of cash from operating, investing and financing activities of the company. It shows the short term solvency of the company. It shows the company's flow of cash both inflow of cash and cash equivalents and outflow of cash and cash equivalents.
All these financial statements are important of the organization and ...
The solution discusses creating a financial statements paper.