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Objectives of Financial Statements

Every organisation whether a small or big should make the financial statements. It is the glass which can show the face of business. It is the summery of all financial activities. With this, we can take big business decisions. It increases the trust on the business on the basis of  its past performance.


Following is the simple list of objectives of financial statement



1.To Show a True and Fair View of Financial Results of the Business

One of the major objective of financial statement is to show a true and fair view of financial results of the business. From beginning of financial accounting process, this objective keeps in the mind. Everything is recorded on the basis of double entry system because we want to check the financial results of business. Business results can be explain in two simple words. Profit or Loss! Either business can earn profit or loss. But without making income statement in financial statements, we can not find it. Income statement will make systematically which compare business's all current incomes and expenses. On this basis, we can show whether business has earned profit or loss.

2. To Show a True and Fair View of Financial Position of the Business

To show a true and fair view of financial position of the business is also the main objective of the business. Not only financial performance, we can also find the financial position on the basis of making financial statements. In financial statements, we make the balance sheet. This balance sheet is nothing but the list of assets and liabilities. By comparing it, we find our current capital. If there are big loss in business, our capital will decrease and it will reach zero level and then our outside liabilities will increase. It is the worst financial position level. So, after checking current financial position, we can take the action to improve our balance sheet. Without making financial statements, we are just blind in the business. Financial statements give us two eyes in the form of balance sheet which tells us that we have to increase our assets instead of liabilities in the business life if we have to save from insolvency.

3. To Help to the Interested Parties of Business

There is the big numbers of interested parties of business like debtors, creditors, employees, tax department, shareholders, partners and general public. All are the readers of current financial statements. On the basis of current financial statements, the can take the decisions whether they will live it in same relation or not. For example, there are 10,000 employees of company. They saw the current financial statement which is so bad. It shows big losses, big debt and there is the chance of liquidation within next one month. 80% employees have started to search to find new jobs. Why? This is the effect of financial statement. After checking financial statement performance, management has decided to Retrench 50% staff. Why? Because they have known in advance, they have no money to pay salary.In simple words, all parties can take the benefits from current financial statements.

4. To Estimate the Future Growth of Business

If any business want to become big. It can estimate through its financial statements. As CA, you can estimate it by reading financial statement properly. Financial statements tell us what is the amount of revenue. If it is $ 10,000, business can make $ 1,00,000 by improving sale staff, by adding new advertising budget, by more promotion. So, future grow of business depends on the current financial statements.


5. To Help for Deep Financial Analysis

Today, there are lots of big financial analysis tool. Even in the e-commerce industry, we also want to know the past revenue data. On this basis, we can do deep analysis for improving our financial results and position.

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Accounting Education: Objectives of Financial Statements
Objectives of Financial Statements
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Accounting Education
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