Introduction
Financial statements refer to a set of records that summarize overall financial activities of the company and reflect the actual financial position of the business. Different financial statements such as cash flow statement, income statement, balance sheet etc. are prepared to determine profitability, to identify risks, to evaluate performance etc. The main purpose of preparing financial statements is to reveal financial status of the firm for the specific period of time.
Objectives Of Financial Statements
The main objectives of preparing financial statements can be expressed as follows:
1. To Provide Information
Financial statements are prepared to provide exact financial information regarding profitability, solvency and financial strength of the firm.
2. To Know The Financial Position
Financial statements are prepared to determine the financial position of the business at the end of the accounting period.
3. To Facilitate Decision Making
Financial information and data provided by financial statements are used by management in decision making process.
Also Read:
Also Read:
4. To Measure The Efficiency
These statements helps to measure operational efficiency and managerial efficiency of the company.
5. To Assist Forecasting
Financial statements helps the management in financial forecasting by providing relevant past data and financial information.
6. Communicating
Financial statements help to communicate with different users such as shareholders, creditors, bankers, government etc. about the financial situation of the firm.
7. To Facilitate Auditing
Financial statements provide valuable data and information about the financial activities of the business that are required while auditing. So, it helps to simplify the audit process.
8. To Enhance Transparency
Financial statements reflect the true financial picture of the company that helps to build trust among stakeholders. So, it helps to enhance transparency that improves the image of the company.