Reflective Journal Essay on the Importance of Financial Statements

This essay presents a reflective journal entry focusing on the significance of financial statements, including the income statement, balance sheet, and cash flow statement, as per GAAP standards. The income statement details a company's revenue, expenses, and profitability over a specified period, while the balance sheet offers a snapshot of a company's assets, liabilities, and shareholder equity at a particular time. The author argues that the balance sheet is the most critical financial statement because it provides a clear picture of the company's current state and offers insights to investors, bankers, and stakeholders regarding the company's financial strength and stability. The essay references academic works to support the explanation of financial statements and their importance in assessing a company's financial health.

Running head: Essay on Reflective Journal-Important Financial Statement
Essay on Reflective Journal-Important Financial Statement
Name of the Student
Name of the University
Author Note

1Essay on Reflective Journal-Important Financial Statement
Financial statements are issued by companies in order to send information of their
company’s financial health to its stakeholders, investors and analyst. In general there are 3
major financial statement as per GAAP. The Income statement, Balance sheet and Cash flow
statement.
The income statement includes company’s revenue, expenses and profitability for a
specified period. It contains quarterly, semi-annually and yearly revenue or total sales for the
company. The statement contains the cost of manufacturing as cost of goods sold. The profit
for the year end is also given in financial statement. EPS is calculated on the basis of the net
profit found in the financial statement.
The balance sheet gives the information about the company’s liabilities, assets and
shareholder’s equity. Balance sheet is prepared on the equation:
Shareholder’s Equity = Assets- Liabilities.
In general the balance sheet is prepared for a particular year and generally at the end
of the financial year of the company. This tells the financial position of the company at a
specific time. This tells the position of the company how much risk can an investor can take
on the company and what is the liquidity that it can provide to the stakeholder and
shareholders at the time of bankruptcy, if happens. The information in the balance sheet also
helps the banker to determine whether it qualifies for loan or not. Asset in the balance sheet
tells what the company owns. Liabilities in the balance sheet is about the payments the
company owes to the creditors.
According to me the balance sheet is the most important financial statement as it not
only shows the clear picture of the company’s current state but also gives an overview to the
investors, bankers and stakeholder of the strength of the company.

2Essay on Reflective Journal-Important Financial Statement
References
Horngren, C. T., Sundem, G. L., Elliott, J. A., & Philbrick, D. R. (2002). Introduction to
financial accounting (Vol. 8). Prentice Hall.
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2010). Intermediate accounting: IFRS
edition (Vol. 2). John Wiley & Sons.