Financial Statements - Essay Example

While the financial statements will provide the overall financial health of the company, SAC board will also be warned of relying solely on the financial statements as the basis for their future decisions. The memo will contain a list of inherent weaknesses that financial statements have in them. a. Income statement - The income statement describes the company’s revenues and expenses along with the resulting net profit or loss over a period of time. Revenues are those that the company earned through the sale of products or services to customers, or any other form of income that accrues to the company due to its business activities.

On the other hand, expenses are those resources that the company has to spend to produce the revenues. The net result is either a net income or a net loss. If revenues exceed expenses, it is a net income. If expenses exceed revenues, it is a net loss. These information are all reflected in the income statement of the company. b. Balance sheet – The balance sheet is a financial statement that describes the company’s financial position at a given time. Its three main components are the assets group, the liabilities group, and the owner’s equity section.

The assets are the resources of the company that are being used to produce the goods and services the company sells to its customers. The liabilities and the owner’s equity, on the other hand, are the means by which assets are financed and acquired for the company. Liabilities are what the company owes its creditors, while equity is what the company owes its owners or stockholders. A company’s total assets are equal to all its liabilities and owner’s equity. c. Statement of owner’s equity – The statement of owner’s equity is also known as the statement of retained earnings.

(Internet Center for Management and Business Administration, Inc., 2010) This statement shows changes in the owner’s equity, resulting from the operations