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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...
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…
Works Cited
Carter, C. (2011). How does a C corporation work? Hearst Communications. Retrieved November 12, from: http://smallbusiness.chron.com/c-corporation-work-4767.html
QuickMBA. (2011). The four financial statements. Retrieved November 12, from: http://www.quickmba.com/accounting/fin/statements/
Roberts, S. (2011). Financial statements of a sole proprietorship. Retrieved November 12, from: http://smallbusiness.chron.com/financial-statements-sole-proprietorship-14717.html
U.S. Securities and Exchange Commission (SEC). (2011). Beginners guide to financial statements. Retrieved November 12, from: http://www.sec.gov/investor/pubs/begfinstmtguide.htm
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