Question
State whether agree or disagree with their explanation of the significant purpose they identified in their response. Explain your answer. Name the four basic financial
State whether agree or disagree with their explanation of the significant purpose they identified in their response. Explain your answer.
- Name the four basic financial statements.
The four basic financial statements are the balance sheet, the statement of revenue and expense, the statement of fund balance or net worth, and the statement of cash flows.
- Choose one of the four and evaluate its purpose for the organization, including its role in the budgeting process.
Thebalancesheetrecordswhatanorganizationowns,whatitowes,andwhatitisworth. So,thetotaloftheorganization's assets equals the combined total of the organization's liabilities and its net worth. "The balancing of the elements in the balance sheet can be visualized as Assets = liabilities + net worth/ fund balance" (Baker, 2017). Balance sheets are so important in the budgeting process because they help determine risk. According to Investopedia website, "A company will be able to quickly assess whether it has borrowed too much money, whether the assets its owns are not liquid enough, or whether it has enough cash on hand to meet current demands" (Fernando 2022). Balance sheets can also be used to secure capital for the company. "The external party wants to assess the financial health of a company, the creditworthiness of the business, and whether the company will be able to repay its short-term debts" (Fernando 2022)
- Explain what type of information can be derived from each statement.
Thebalancesheetrecordswhatanorganizationowns,whatitowes,andbasically,whatitisworth
A statement of revenue and expense covers a period of time. "The concept is that revenue, or inflow, less expenses, or outflow, results in an excess of revenue over expenses if the year has been good, or perhaps an excess of expenses over revenue if the year has been bad" (Baker, 2017).
The statement of fund balance or net worth shows how the excess of revenue over expenses flows back into equity.
The statement of cash flow allows you to understand the cash/noncash concept.
- Describe the major purpose of financial statements.
The major purpose of a financial statement is to provide information that analyzes a company's financial strength and a quick snap of their financial health and underlying values. All financial statements must be prepared in accordance with a control basis of accounting.
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