22. Determine whether the frollowing statement is correct and support
your answer with an appropriate explanation.
" Financial Statements are prepared just to know the profits earned
or loss incurred during on accounting period."
.
.
Answers
Let us discuss it
Explanation
The statement " Financial statements are prepared just to know the profits earned or loss incurred during an accounting period " is not fully correct We prepare financial statements to know profit or loss and at the same time it is also legally compulsory to prepare the financial statements of an accounting period. There are many other stakeholders which have interest in the financial positions of any business.
Lets explain the above statement
1. We maintain financial statements such as Profit and Loss Account and Balance Sheet to know the profit and loss incurred during the accounting period as it is important to know if a firm is incurring losses or earning profits at the end of an accounting period but at the same time when the return is filed by an firm it is compulsory to submit the financial statements along with. Financial statements is the record of our incomes or expenses our capital and assets etc. It is the proof of the return we are filing with department.
2. Moreover there are many other stakeholders which can have interest in the financial statements of any business such as Creditors, suppliers , Banks , customers and many other such stakeholders which may have interest in the financial statements of any business
So above statement is not fully correct, checking profit or loss is one and most important factor but not the only factor for preparing Financial Statements