THE CORE FINANCIAL STATEMENTS

FINANCIAL STATEMENTS: Accounting information is conveyed through a standardized set of reports. The four fundamental financial statements are the income statement, statement of retained earnings, balance sheet, and statement of cash flows.

INCOME STATEMENT: A summary of an entity's results of operation for a specified period of time is revealed in the income statement, as it provides information about revenues generated and expenses incurred. The differences between the revenues and expenses is identified as the net income or net loss.

THE STATEMENT OF RETAINED EARNINGS: The retained earnings at the beginning of a period, plus income (or minus loss), minus dividends, results in ending retained earnings (which would also appear on a balance sheet prepared at the end of the period). The statement of retained earnings succinctly reports this information. However, many companies will presented an expanded statement of stockholders' equity that portrays not only changes in retained earnings during a period, but also changes in other equity accounts such as capital stock.

BALANCE SHEET: The balance sheet focuses on the accounting equation by revealing the economic resources owned by an entity and the claims against those resources (liabilities and owners' equity). The balance sheet is prepared as of a specific date, whereas the income statement and statement of retained earnings cover a period of time.

STATEMENT OF CASH FLOWS: This final statement is a bit more complex, detailing an enterprises cash flows, broken down according to operating, investing, and financing sources. Its coverage is best deferred until you have had a chance to progress further in your study of accounting.

ILLUSTRATIVE STATEMENTS: The following portrays sample final statements for Quartz Corporation. Please take time to review these statements, noting carefully how the net income on the income statement flows through to the statement of retained earnings, and how the ending retained earnings flows through to the balance sheet.