Why Are Financial Statements Important

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Importance of the Financial Statements Ronald Campbell Principles of Accounting I ACC205 Keith Graham December 6, 2010 Importance of the Financial Statements In this paper I will talk about how important the financial statements are and why they need to be accurate for the outside business interests, and why they are not important for lenders and other outside investors. The first thing we should ask you what is a financial statement? Financial statements “are business documents that report on a business in monetary terms” (Hornger & Harrison 2007, pg.17). All financial statements are essentially historically documents. The most common financial statements include the balance sheet, the income statement, the statement of changes of financial …show more content…

If one knows how to record transactions, do a trial balance and make adjusting entries it gives the person a better understanding of the information the financial statements contain. The financial statement “summarizes the transaction data into a form that’s useful for decision making (Hornger & Harrison 2007, pg.19). The financial statements are Income statement, Statement of owner’s equity, Balance sheet, and Statement of cash flows. Financial statements are often audited by external auditors. The “Public Company Accounting Oversight Board, over sees the work of auditors of public companies” (Hornger & Harrison 2007, pg.408). The financial statements should be done in the following order: Income statement this determines the net income, Statement of owner’s equity this is to compute the ending capital, and the Balance sheet needs the ending capital to achieve its balancing …show more content…

“SOX revamped corporate governance in the United State and affected the accounting profession” (Hornger & Harrison 2007, pg.408). Some of the things that SOX provisions are that public companies must use issue internal control reports, accounting firms may not audit a public client and provide consulting services for that same client, and a stiff penalties for any violators for making false statements. As it was stated in Accounting 7e the top chief executive of WorldCom and the top executives of Enron were each sentenced to 25 years in

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