23 May financial statements
THE ORIGINAL QUESTION WAS:
What kind of information would be found on the financial statements?
- Explain how the users of these statements (i.e., investors, creditors, or government agencies) could use the information to help make better informed decisions.
- How would you determine if any fraudulent or illegal activity has taken place?
REWORD THE FOLLWOING PARAGRAPHS:
The balance sheet is a document that contains the organization’s overview of assets, stakeholder’s equity and liabilities as a snapshot in time. The equation of assets in balance sheet usually equals liabilities in addition to stakeholder’s equity, since assets are remunerated for with either liability, like stakeholders equity, debt search as additions that are paid in capital and retained earnings. The main importance as to why assets are recorded on balance sheet is for liquidity purposes. While liabilities are recorded in the arrangement in which they are remunerated. Basically, the current liabilities are required to be paid annually while long-term are the expected debts. To be remunerated after one year.
Income statement covers a period which is a year mainly for annual financial statements and a sector for the quarterly financial statement. The income statement offers an overview of expenses, revenues, net income and incomes per share. The income statement usually offers more than one year for the corporate analysis of the data (Ittelson, T. R. 2009). Cash flow is the third financial statement that combines income statements and balance sheet. Due to the accounting resolution, net income usually falls of position with cash flow. The statement of cash flow usually settles the income statement through balance sheet in three main business operations. The activities include investing, operating and financing actions. Operating activities involves cash flow created from regular business activities. Investing operation usually involves cash flow arrived from buying and selling of organizations assets like equipment and real estate. Financing activities involve the cash flow and derived from equity and debts. Analysts usually find the amount of shared purchased. Through these financial statements, it is possible for the organization to conduct the annual financial statement suitably. The analysis is usually the process of evaluating and reviewing the organization financial statements through cash flow, balance sheet and income statement information available in them.
Financial statements are typically used by various individuals for different purposes, especially in the process of decision making. The financial statement usually offers financial information needed by shareholders, creditors among others in order to evaluate the organization’s performance. It is essentially important for an investor of the creditor to understand the performance of the company since it acts as an approval that the organization is productive (Fridson, M. S., & Alvarez, F. 2002). Utilization of financial conditions is essential since they help the investors and creditors with the security of their investment since they understand where their investment has been taken. The organization cash flow is essential for investors since the investors gain the knowledge of the organization’s operations income, which is the main interest for the investors. It usually shows the cash exchange between the organization and the market or outside world during the time. Investors are able to know the company potential based on the cash to pay and purchases of assets. Through these information’s, it is possible for the investors to make right decisions towards their investment.
Fraud is one of the challenges faced when analyzing the financial statements. Different organizations have been faced with the challenge, which mostly becomes planned by the top management of the organization. Fraud is usually falsification of accounting documents within an organization. There are usually some types of fraud that are intentional and others unintentional (Wells, J. T. 2011). Errors usually occur while preparing the statement, leading to unintentional fraud while others are intentional fraud for finances interest by the management. It is essentially important to scrutinize the financial statement avoid fraud. In order to understand fraud act, the process of auditing is required in order to avoid fraud. Auditing is the inspection of the financial accounts and recording of financial operations for the business object that is being audited. Through the process, it is possible to understand if fraud has taken place.
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