FIN 590 Types and Components of Audits Question 1

Audits of the Capital Statement, Income Statement, and Statement of Cash Flows are of importance to lenders and investors because they provide a window into the financial health of the company. Each sheet works to show different views of the company’s finances and provides different points of view such as the income statement which shows the revenue earned minus the expenses incurred for a given time period and ending at a specified date (Kimmel, Kieso, & Weygandt, 2011). This statement shows how much money the company is taking in and spending which can be revealing with regard to how capital is being used.

The Capital Statement provides a summary of all the changes in owner’s equity that occur within a specific period. This statement shows the value or proprietorship of the owners or stockholders in the company. This statement is also revealing, espcecially to investors because it shows the value of ownership in the company (Kimmel, Kieso, & Weygandt, 2011).

The statement of cashflows refers to the movement of cash and the liquidity of the company. Specifically, this statement shows investors and lenders the daily financial position of the company (Kimmel, Kieso, & Weygandt, 2011). If the cash flow is negative this would impact the desire to lend to the company because it would show that the company may have issues making payments. Likewise, this statement also impacts investors because it shows that money is either available or not available which determines the strength of the company.

Financial accounting: Tools for business decision making2011HobokenNJJohn Wiley & Sons

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