Principles of Accounting I

Think about the different types of financial statements you learned about in this unit (the income statement, statement of retained earnings, balance sheets, and statements of cash flow). If you were an investor, would you place more emphasis on any one particular financial statement? Why, or why not?

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AMY:

If I was looking to invest in a company, I think that I would want to look at all of the financial statements that were available.  Each has its place in reporting the financial stability of the company.  The income statement would show the earning and the losses of the company.  The statement of retained earnings would show the profits that are being made by the company, although I realize that this is not usually shown to the stockholders.  The balance sheet would list all of the assets, liabilities and the equity that the owner had in the company.  This would help to show how much trust the owner had in the company by showing what (s)he had invested.  Finally, the cash flow statement would show all of the cash going in and out of the company during a specific time period.

Looking at just one of these would only give you a glimpse into the financial stability of the company.  If I were looking at investing a large sum of money, I would want to know that I was going to get a return on my investment.