Financial statements - Research Paper Example

The documents that constitute the financial statements include the balance sheets, income statements, cash flow statements and the statements of shareholders’ equity (Sinha, 2007). There are some aspects of relationship between these financial records. The three financial records are used to show the financial situation of the company. First, a balance sheet is a financial statement that is used to show what a company owns and what it owes to others, in terms of the assets and the liabilities of the company (USEC, 2007).

The income statement is used to show the amount of money that the organization made and how much money it spent within a given financial period, which could range from monthly, to quarterly or annually. On the other hand, the cash flow statements serve to indicate the monetary exchanges that an organization has had with the outside world, within a specified duration of time. The similarity in all these financial records is that they serve to indicate the financial situation of the organization after its interaction with the other stakeholders, in terms of assets, revenues, liabilities and expenditures (Wahlen, Bradshaw, Baginski & Stickney, 2010).

Secondly, the three financial records serve to indicate what the organization has spent to gain the property and finances it owns (USEC, 2007). The three financial records have the expenditure and the revenue components, which measure the gains and the take-away that an organization has experienced in financial terms, within a specified period of time. The balance sheets, income statements and the cash flow statements have a debit side, in which they record the expenditures and the reductions to the assets of the organization in terms of the outgoing money.

The costs associated with earning either the revenues or the assets that an organization owns are shown in terms of the costs and expenditures that the organization has incurred within a specified period of time. The bottom line of these financial records is to show how much an organization has made within a period of time, and how much the organization has spent within the same duration, and thus give the overall conclusion regarding whether the transactions that were undertaken by the organization during the specified period either helped to make gains or loss (Sinha, 2007).

The final conclusion of the three financial records is that they accumulate all the gainful transactions and records them in terms of the amounts of money they help bring in to the organization, while recording the other transactions that serves to take away money from the organization. The two types of transactions are then summed up, and their totals compared, to determine the implication of the transactions that an organization made throughout the period, whether they are gainful or they constitute a loss.

However, there is a different set of relationship between the balance sheets and the cash flow statements on one hand, and the income statements on the other. This relationship exists in the form of adjustments, where both the balance sheets and the cash flow statement are used to adjust the income statement, through introducing certain financial aspects, which cannot be directly categorized as direct incomes or expenditures (Penner, 2004). The income statement is purely applied to