1)Respond to the following in no less than 250 words: Peachtree generates several financial statements based on the information entered. Identify and briefly summarize each financial statement. How are thesestatements used? Why is it important that these statements are accurate?
Balance Sheet: is a snapshot of the company’s financial position prepared at a specific date, it lists the company’s assets, liabilities as well as the owner(s) equity so that an investor can see and analyze the financial position of the company. Income Statement on the other hand gives a picture of the financial activities of the company within a period; it lists the company’s revenues and expenses so that an analyst can see the bottom line profits (or losses) of the company’s operation throughout the period. If Net Income is positive, the company made a profit, if it is negative, then the company suffered a loss.
Statement of Cash Flows is just like the Income Statement in the senses that it shows the activity of the company during a period, yet this statement is important in one respect, it gives an account of what has affected the company’s most liquid asset (Cash). The statement of cash flows lists how much cash was generated (or used) by each of the Operating, Investing, and Financing activities.
Finally, The Statement of Retained Earnings lists the beginning and ending retained earnings balance. In this statement, dividends are subtracted from the beginning Retained Earnings while net income is added to it to arrive at the ending retained earnings amount. The retained earnings balance is the cumulative, lifetime earnings of the company less its cumulative losses and dividends.
Those statements are interrelated, for example, the net income affects the retained earnings account, changes in assets; liabilities, …etc are reflected in the statement of cash flows, hence each statement has to be accurately prepared because an incorrect entry in one of the statements would affect all other statements, that is one thing; another thing is that investors and creditors base their decisions on whether or not to invest and extend credit to the company based on the analysis of the statements, hence statements should be accurate.
2)Respond to the following in no less than 250 words: This week, you learned what is contained in several financial statements generated by Peachtree and how these statements interrelate. What information didyou find most challenging? Why?
Writea paragraph on each exercise discussing what the information from each financial
statement means and why the information is useful to those who read the financial statements.