s. Because American accounting principles demand that similar assumptions are made regardless of the company preparing the statements, individuals who analyze these statements can be confident that cross-company or cross industry comparisons will be based on similar types of information. Indeed, public companies regularly have their financial records audited by independent auditors; the goal of these auditors is not to verify whether the information presented on the statements is true or false, but rather than generally accepted accounting principles (GAAP) and accounting regulations (FARs) have been followed in the preparation of the statements (Benshoof 132).
The income statement indicates whether a company has been profitable, and the degree to which the company has enjoyed a profit. Fundamentally, the income statement shows the amount of revenue received, the cost of generating that revenue, operating expenses, and the resulting profit. Revenues from non-operational functions (such as investments) are not included on the income statement (Benshoof 132).
The balance sheet is a "snapshot" of a company at a particular point in time. Balance sheets identify what the company is worth (the company's assets minus its liabilities), where those assets are located (in capital goods or in short term assets), how the company finances its operations (through short-term or long-term debt), and who has claims against the assets. The balance sheet is called that because the assets of a company must equal its liabilities and equity added together ("Applying" 25).
The statement of cash flow helps a company and its creditors determine whether the company is well-positioned to meet its cash needs. A company may have soaring revenue and be highly profitable, but if it does not have a strong cash flow, it could find itself in trouble (and may need to improve its collection procedures, or extend less trade credit as a result). Inexperienc...