Neo-Confucianism Is a Philosophy Which Was Born TEST1

Financial Statements and Business Organizations

Generally accepted accounting principles (GAAP) require four different financial statements for most forms of business organizations: the balance sheet, income statement, cash flow statement, and statement of shareholders, partners' or owner's equity. This essay examines the statements associated with the sole proprietorship, the partnership, the C corporation and S corporation.

A sole proprietorship is a business owned by one person. From an accounting standpoint the business is treated as a separate entity from its owner. A partnership consists of two or more individuals who are co-owners of an enterprise. AC corporation automatically forms when a business becomes incorporated, and shields the shareholders from being personally liable for the debts and obligations of the company (Carter, 2011). The S corporation is a C corporation which has elected pass-through taxation.

Balance Sheet

A balance sheet provides detailed information about a company's assets, liabilities and equity. It reports the financial position of a business, showing what assets a company owns, and what liabilities it owes, at a given point in time. The following formula summarizes what a balance sheet shows:

Assets = Liabilities + Owners Equity

Equity is referred to as owners equity in a sole proprietorship or partnership, and stockholders' or shareholders' equity in a corporation. For a sole proprietorship or partnership, equity is listed as the owner or owners' names followed by the word "capital." For a corporation, equity is listed as common stock, preferred stock and retained earnings (QuickMBA, 2011).

Income Statement

The income statement is also known as the statement of financial performance and reports the results of earnings activities for a specific time period, such as a month, quarter or year. The income statement shows the costs and expenses associated with earning revenue. The bottom line of the statement shows the company's net earnings or losses over the period.

Incomes statements also report earnings per share (EPS) for corporations having shareholders. EPS is a measure of net profitability that investors analyze in making investment decisions. Net income is described by the equation:

Net Income = Revenue - Expenses

Statement of Owners' Equity

The statement of owners' equity is also known as the statement of retained earnings. It uses information from the income statement and provides information to the balance sheet. The following equation describes the equity statement for a sole proprietorship:

Ending Equity = Beginning Equity + Investments -- Withdrawals + Income

For a corporation, Dividends Paid takes the place of Withdrawals. The statement of partners' equity shows the capital balances of the partners. It starts with capital balances at the beginning of the accounting period, and reflects additional investments made by the partners during the year, as well as net income and withdrawals for the period (QuickMBA, 2011).

Cash Flow Statements