Briefly explain the importance of preparing financial statements.
Importance of financial statements:
1. It provides information to various users of accounting information which can be both internal and external. Users derive information as per their needs from such statements. For example it provides shareholders an idea about the viability of business while the same statement can be used by tax authorities to determine tax payable by organisation.
2. It helps management in comparing performance which can be on both inter and intra firm basis, it helps in determining the viability of business and also is helpful in framing of policies for business. It enhances the decision making capabilities of the management.
3. Financial statements help creditors and investors determine the state of solvency of a business which influences decision to offer loans and credit.
4. Financial statements help provide information on different policies, methods, best practices and accounting processes. Disclosing accounting policies simplifies financial statements and makes users of accounting information.
5. The government uses accounting information to determine various parameters of national growth like GDP, National Income, Industrial growth etc.
6. Investors need information on business solvency and profitability to offer further loans and invest in business and such information is obtained from financial statements.
Importance of financial statements:
1. It provides information to various users of accounting information which can be both internal and external. Users derive information as per their needs from such statements. For example it provides shareholders an idea about the viability of business while the same statement can be used by tax authorities to determine tax payable by organisation.
2. It helps management in comparing performance which can be on both inter and intra firm basis, it helps in determining the viability of business and also is helpful in framing of policies for business. It enhances the decision making capabilities of the management.
3. Financial statements help creditors and investors determine the state of solvency of a business which influences decision to offer loans and credit.
4. Financial statements help provide information on different policies, methods, best practices and accounting processes. Disclosing accounting policies simplifies financial statements and makes users of accounting information.
5. The government uses accounting information to determine various parameters of national growth like GDP, National Income, Industrial growth etc.
6. Investors need information on business solvency and profitability to offer further loans and invest in business and such information is obtained from financial statements.
