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Q: What are the four basic financial statements? What is the primary purpose of each of the four basic financial statements? In your opinion, which financial statement is the most important? Explain
why.
A: On its income statement, Maxidrive overstated its ability to sell goods for more than the cost to produce and sell them. On its statement of retained earnings, [ Maxidrive overstated the amount of income it reinvested in the company for future growth. On its statement of cash flows, Maxidrive overstated its ability to generate from sales of disk drives the cash necessary to meet its current
debts. These four financial statements are the basic statements normally prepared by profit-making organizations for use by investors, creditors, and other external decision makers. The four basic statements summarize the financial activities of the business. They can be prepared at any point in time (such as the end of the year, quarter, or month) and can apply to any time span (such as one year, one quarter, or one month). Like most companies, Maxidrive prepares financial statements for investors and creditors at the end of each quarter (known as quarterly reports) and at the end of the year (known as annual reports). The income statement (statement of income, statement of earnings, or statement of operations) is the most important because it reports the accountant's primary measure of performance of a business, revenues less expenses during the accounting period. ]
Expert answered|Tforani2|Points 190|
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Asked 10/10/2012 7:49:18 AM
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