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explain financial statements

Consider that you have been asked to explain financial statements to someone who knows nothing about accounting.

Discuss each of the four financial statements. Explain the different components of the statements as well as what the statements tell about a business.

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Accounting is the means by which information about an enterprise is communicated and, thus, is sometimes called the language of business. Costs, prices, sales volume, profits, and return on investment are all accounting measurements.

Financial Statements is designed primarily to assist investors and creditors in deciding where to place their scarce investment resources. It is also used to help management to know the performance of organization.

Financial statements are useful tools for evaluating both profitability and liquidity. Used separately, or in combination, the income statement and balance sheet help interested parties to measure a company's current financial performance, and to forecast its profit and cash flow potential. Accountants summarize this information in a balance sheet, income statement, statement of retained earnings and statement of cash flows.


Balance sheet, tells about the assets and liabilities of business. It portrays the picture of the organization on a particular date. The balance sheet highlights the financial condition of a company at a single point in time. This is important; the cash flow and income statements record performance over a period of time, while the balance ...

Solution Summary

This post easily explains financial statements.