Financial Statements

Satisfactory Essays
Financial statements
Financial statements (or financial reports) are formal records of a business' financial activities. Financial statements provide an overview of a business' financial condition in both short and long term. All the relevant financial information of a business enterprise presented in a structured manner and in a form easy to understand, is called the financial statements.
A sound understanding of financial statements helps us to:
• Identify damaging tendencies and tendencies throughout organization’s functions (for case in point, the actual unhealthy backlog associated with inventory or reports receivable) prior to circumstance turns into vital.
• Monitor profit requirements using a well-timed groundwork, and identify funding desires early.
• Monitor significant signs associated with personal wellness (for case in point, liquidity ratios, efficiency ratios, earnings ratios, and solvency ratios).
• Monitor recurrent increases and decreases throughout prosperity (particularly, owners' or stockholders' equity).
• Monitor the actual performance in opposition to personal approach, should you have designed one particular.
According to John N. Myer “the financial statements provide a summary of the accounts of a business enterprise, the balance sheet reflecting the assets and liabilities and the income statement showing the results of operations during a certain period”
1.1.2 Nature of financial statements
Financial statements are prepared with the aim of presenting periodical review or report on the progress by the management and subsume the following:
(a) Status of the Investments within the Business.
(b) Results achieved throughout the amount beneath review.
The Data exhibited in these financial statement...

... middle of paper ... regarding the figures. Then again, if figures are given in items then it will get troublesome to judge the working of the business.

1.1.6 Importance of financial statements
The financial statements are a mirror which reflects the financial position and operating strength or shortcoming of the concern. These statements are useful to management, investors, creditors, bankers, workers, government and public at large. Following major uses of financial statements:
 As a report of stewardship.
 As a basis for fiscal policy.
 To determine the legality of dividends.
 As guide to advice dividend action.
 As a basis for the granting of credit.
 As informative for prospective investors in an enterprise
 As a guide to the value of investment already made.
 As an aid to government supervision.
 As a basis for price or rate regulation.
 As a basis for taxation.
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