Economics is one of the most influential courses around. Professionals in this field use their skills to come up with strategies and policies on investment, production, and consumer mannerisms that are needed to ensure institutions are profitable. A career in economics is also very lucrative, and professionals in this field earn huge salaries and bonuses every year. These are some of the things that entice students to take up courses in economics in college. Other than learning the concepts in economics, students are required to understand the various documents that they will come across in their careers and how to complete them effectively. Let’s now review some of these documents, how to fill them as well as their purpose in the business environment.
- The Balance Sheet
- The Income Statement
- The Statement of Retained Earnings
- The Statement of Cash Flow
This is by far the most important document in the financial sector. The balance sheet tells the exact financial position of a firm at a given time. It lists the value of the company’s assets, its liabilities, and the owner’s equity at that point. A balance sheet usually bears the name of the institution, the exact date of the statement and the unit of the currency. The assets are the physical resources that the company owns such as land, machinery, and processing plants. Liabilities are the firm’s debt and financial obligations. The owner’s equity indicates the finances provided by the owner to set up the business. The company’s assets must equal the liabilities and owner’s equity at that particular time for the company to be considered to have a healthy financial position.
This document is known as the Profit and Loss Statement, and it indicates the firm’s financial performance regarding net profits or losses as at a particular time. It is calculated as the difference of the company’s revenues and expenses. The firm’s revenue includes what the company earned through sales and dividend income while the expenses are the costs incurred through salaries, wages, and rental charges. If the revenues exceed the expenses, the company reports profits, and if the expenses exceed the revenues, the company reports losses.
The statement of retained earnings reports the movements in the firm’s net income and how the distribution of the firm’s dividends affected its financial position during an accounting period. Net income earned in that accounting period improves the statement of retained earnings while the dividends paid out to stakeholders decrease the retained earnings.
This document details the movement of cash within a business over a specific period of time. The cash flows are classified into 3 distinct categories. These are cash flows from operating activities (CFO), cash flows from investing activities (CFI), and cash flows from financing activities (CFF). CFO represents cash flows from the firm’s primary activities. CFI represents cash earned through the sale of the company’s assets while CFF represents the cash generated or spent when raising and repaying capital and business debts.
Above, there are some of the documents students will come across when studying economics in colleges and in their careers. Students should, therefore, make an effort to understand them so as to become productive members in their workplaces.