Basic Financial Statements

Financial statements provided by organizations (for profit and not for profit) are essential to the process of financial decision making. Financial decisions concerning organizations are made not only by the organization but also by investment analysts, investors, lenders, funding organizations, and governmental regulators (Williams, Haka, Bettner, & Carcello, 2004).

Financial statements are used to report the financial performance and the financial positions of organizations. Four essential (basic) financial statements prepared for these purposes are as follows (Belkaoui, 2004):

The statement of changes in stockholders' equity, and

Although each of the four financial statements identified above serve separate and distinct purposes, there are important interrelationships among the financial statements. Consistency among and between these four financial statements is essential when reporting an organization's financial performance and financial position (Belkaoui, 2004). The interrelationships among the four essential financial statements are discussed in the remainder of this paper.

Interrelationships among Financial Statements

The income statement is a report of the financial performance of an organization covering a specific reporting period. Most organizations prepare formal income statements for both external and in