Question

Subject: Short-term Financial Management

Required: In your opinion, is the income statement, balance sheet, or statement of cash flows the most important financial statement? Why or why not? Please write at least 250 words.

Please write in your own words and don't copy from anywhere. Thank You.

Answer 1

Financial statements are important documents for any business activities which denotes the financial performance of an organization. These statements are generally get audited by federal agencies or any accounting firms to make sure in the accuracy of the information maintained related to tax or financial matters. Financial statements consists of balance sheet, income statement and cash flow statement. The financial statement information is used to evaluate the performance of the organization and offer prediction related to the future direction of the organization’s stock pricing. More often this information is captured in organization’s annual report and useful for business investors, market creditors or analysts in order to assess the organization’s financial stability and potential related to business earnings. The balance sheet offers an information on organization’s assets, liabilities and equity (for stockholder) for the stipulated time duration. It helps in determining to fund the assets with the help of liabilities. Generally the assets (such as, cash and cash equivalents, accounts receivable, inventory, etc.) are depicted in terms of liquidity whereas liabilities( such as, wages payable, rent, tax, debt, dividends payable, etc.) are depicted the way these are to be paid. Income statements consists of information based in the time range, such as annually and quarterly. This offers brief on revenues , earnings per share, expenses, net income, etc. An income statement is important for capturing organization’s financial performance for the particular accounting period. Sometimes this is called as ‘ statement of revenue and expense’ or ‘ profit and loss statement’. Whereas, the cash flow statement helps to understand how the organization will generate cash to fulfill the obligations related to the debt, ensure on operating expenses along with the fund investments.