Objective and Users of Financial Statements

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Tally Solutions | Nov-28-2019

 

Objective of Financial Statements

Financial statements are reports prepared by a company’s management to present the financial performance and position at a point in time. The very basic objective of financial statements is to provide information about the financial position, performance and cash flows of an enterprise that is useful to a wide range of users in making economic decisions.

The Financial Statement are prepared to meet the common needs of most users. However, financial statements do not provide all the information that users may need to make economic decisions because

  • They basically portray the financial effects of past events.
  • Do not necessarily provide non-financial information

The statement of financial accounts also shows the results of the stewardship of management or the accountability of management for the resources entrusted to it. Financial Statements helps the stakeholders, both internal as well as external take various decisions.

The financial effects of transactions and other events are grouped into broad categories according to their economic characteristics to give us a true picture of the company as mentioned in the below table.

Elements of Financial Statements

Measures

  • Assets and Liabilities
  • Equity = Capital + Reserves

Financial Position

  • Incomes and Expenses

Statement of Profit and Loss

Users of Financial Statement

Financial statements users include present and potential investors, employees, lenders, suppliers and other trade creditors, customers, governments and their agencies and the public. These users look forward to financial statements to satisfy some of their information needs. The below table explains the different types of users and the specific information they seek form financial statements.

Users of Financial Statement

What information they need

Investors

Investors being the providers of capital are concerned with the risk and return provided by their investments.

Employees

They are the internal users who look for this information for making decisions

Lenders

Lenders are interested in information which enables them to determine creditworthiness of the company

Trade creditors

Trade creditors are interested in information which enables them to determine whether amounts owing to them will be paid when due.

Customers

These outsiders have an interest in information about the continuance of an enterprise, especially when they have a long-term involvement with or dependent on the enterprise.

Government and other agencies

Governments and their agencies look at these financial statements to determine the compliance adherence of the company.

 

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