Describe key financial statements, including balance sheets and cash Essay

Describe key financial statements, including balance sheets and cash flow statements - Essay Example The income statement is usually valid for a period that is specific. This may be a month or a year. Nonetheless, income statements are indispensable. This is because they permit the owners of a business to evaluate the business results over a period and to know the outcomes of other businesses for a similar period (Longenecker, Petty, Palich & Hoy, 2012). A cash flow statement illustrates the flow of money out and in a business. The cash flow statement depicts both the accompanying alterations and the current results of operation in the balance sheet. A cash flow statement is helpful in ascertaining the viability of a business that is short-term, most importantly, its capacity to pay costs. Moreover, a cash flow statement highlights the true cash flow paid and received by the business. A cash flow statement highlights the flows of cash from operations, that is, the staff and suppliers’ payments, and money received from clients (Longenecker, Petty, Palich & Hoy, 2012). Also, it shows cash flows from investing activities and financing activities. Cash equivalents are assets that can be willingly converted to money, for example, commercial papers, treasury bills, money market, or marketable securities. Moreover, cash equivalents have an existence that is short-term. Cash equivalents mature within a period of 3 months. A cash equivalent investment should have a change in value that has insignificant risk (Graham, Zweig, & Buffett, 2003). Accounts receivable is cash owed to a business by customers and the balance sheet depicts it as an asset. It deals with the billing of a client for services and goods ordered by the client. In addition, accounts receivable epitomizes cash owed by persons to the business on services or products sales on credit (Graham, Zweig, & Buffett, 2003). An inventory is a list of materials and goods that are stocked by the business. Inventories are mainly materials and goods