(Income Statement, Statement of Owner’s Equity, Balance Sheet, and Statement of Cash Flows) PDF

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Financial Accounting...

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For this week’s reflection, explain how financial statements (Income Statement, Statement of Owner’s Equity, Balance Sheet, and Statement of Cash Flows) are helpful to the business owner, employees, and investors using a company in your local area. Be sure to begin by stating the name of the company you chose. I have been working for Honey Bunch International Education since 2017. It is a local company that hires foreign teachers and collaborates with different public educational institutions (from public primary schools to universities), providing the staff. It is a relatively small company, but it has to process all the necessary papers (including accounting ones) to be able to show any documents to the PSB (Public Security Bureau) whenever it is needed. All companies that have foreign employees have frequent revisions and Star is not an exception. "The income statement is a statement that shows the organization’s financial performance for a given period of time." (Franklin, Graybeal, & Cooper, 2020). Using the Income Statement we can see whether the company is profitable and count its Gross/Net Profit Margin. We can also see how the numbers will change if we raise or lower prices, eliminate some kind of expenses, and count how every position affects the revenues. For the owner of Honey Bunch International Education, the income statement is a good chance to see how well his company performs. Based on his impression, he creates some vision and ideas about what his company should achieve and what numbers he wants to see in the future. After this, the manager of the company makes several decisions and creates the appropriate strategy. The employees work under this manager with the strategy, that goes along with the owner's vision so that the next period's income statement shows different numbers. Investors, after looking at this financial statement, measure whether the company is profitable enough and decide whether they want to invest in the company or not. "The statement of owner’s equity, which is the second financial statement created by accountants, is a statement that shows how the equity (or value) of the organization has changed over time." (Franklin, Graybeal, & Cooper, 2020). Usually, this financial statement consists of the invested amount and the income which is reinvested into the company. In other words, the statement of owner's equity shows the net worth of the company and how it changes. For the owner of the company, as well as for the investors, this financial statement can show how healthy this business is. If the company is not a kick-start and already exists for some period of time, it is important that it is able to operate without investments. As for the employees, this financial statement can affect how many workers there are in the company and what their salaries are. In a situation, where the owner of the company invests a lot and the profit is not very high, he can decide to have fewer staff members, lessen their salaries or cancel bonuses unless this business does not become healthier and more profitable. Speaking about Honey Bunch's employees, this financial statement can affect the newcomers' salaries, our annual bonuses, hiring freezes, and many other things positively, or negatively.

"The balance sheet is a statement that lists what the organization owns (assets), what it owes (liabilities), and what it is worth (equity) on a specific date." (Franklin, Graybeal, & Cooper, 2020). As we can see from this definition, this financial statement lets the owner and investors see what the company has, what it has to pay, and how worthy it is. Knowing all this information the owner and top management of the company can make important decisions and estimate the current situation correctly, and the investors can decide if it is a good idea to invest in this business, whether it will grow, and be profitable in the future. As well as the other financial statements, this one affects the number and salaries of the employees. "The fourth and final financial statement prepared is the statement of cash flows, which is a statement that lists the cash inflows and cash outflows for the business for a period of time." (Franklin, Graybeal, & Cooper, 2020). This financial statement can show the owner and investors how successfully (or not) the company performs. Also, this Statement makes it clear for investors where the money comes from and where it goes; if the company doesn't have a strong financial footing, it is not worth to invest in its shares. References Franklin, M. Graybeal, P. & Cooper, D. (2020). Principles of accounting, volume 1: Financial accounting. Open Stax Rice University. Retrieved from https://openstax.org/details/books/principles-financial-accounting...