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The Three Major Financial Statements For Retail

Updated on May 30, 2014

Income Statement

Financial statements are important for all companies, not only to keep up with taxes and SEC Regulations, but it also gives the managers needed information to make decisions about a company. While all statements are important for one reason or another, the income statement is the most important by far of all the rest. In this financial statement, a company will learn if they are even making a profit or not, this obviously is important. It will give you the sales and expenses of any given time frame, which will allow the company to decide if a product is even worth making. If the income statement is not completed correctly, the wrong decisions and the company may be losing money and not even know it. They would also pay the wrong taxes which can lead to fines and other sanctions from the IRS, as well as criminal charges. For embezzlement, the income statement can be used to determine if a sale was not logged, or if the cash that should be there, is not.

Balance Sheet

A balance sheet is another financial statement, while a bit like the income statement, the difference will be what the information is for. “A balance sheet shows the financial condition of a retailer’s business at a particular point in time, as opposed to the income statement, which reports on the activities over a period of time”(Dunne, Lusch & Carver, 2011). For embezzlement purposes, a balance sheet can be compared with another one to see if there are changes and trends when a new person started working there. You could also use the balance sheet to catch embezzlement if the assets=liabilities plus owner equity is not adding up. If it is done incorrectly, the owner may believe he has more disposable income than he does, as well as he may not claim enough income as a sole proprietor or partnership.

Statement of Cash Flow

Statement of cash flows is another important financial statement for any business because it will let them know how much cash or cash equivalents they have on hand to operate the business. This will show details of all inflows and outflows for a period, as well as what cash will be on hand to take care of it. If this statement is done wrong, a loan may be taken out that was un-needed, leading to extra cost of interest that was not needed, or on the other side, the company may not have enough money to finish an improvement they had been planning. For embezzlement, it could show an employee taking cash by there not being as much as their should be.

Dunne, P., Lusch, R., & Carver, J. (2011) Retailing 7th Edition


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