Question

State the significance of analysis of financial statements to ‘lenders’, tax authorities and

government.​

Answer 1

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Answer 2

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The financial statements of a business provide a formal record of its financial activities. As a business owner, your financial statements offer valuable information about your company's overall financial position, such as areas of financial strength or weakness. Financial statements are important to tax authorities to ensure the accuracy of taxes and additional duties declared and paid by your company.

The financial statements of a business provide a formal record of its financial activities. As a business owner, your financial statements offer valuable information about your company's overall financial position, such as areas of financial strength or weakness. Financial statements are important to tax authorities to ensure the accuracy of taxes and additional duties declared and paid by your company.

Types of Financial Statements

There are four key financial statements your company may have: a balance sheet, income statement, cash flow statement and statement of owners' or shareholders' equity (retained earnings). A balance sheet gives an overview of your company's financial position, or what it owns and owes at a given point in time. An income (profit/loss) statement represents how much money your company spent and received over a specified period of time. Cash flow statements reflect the amount of cash exchanged between your company and the outside world over a period of time. A statement of shareholders' equity displays adjustments in ownership interests of the company's owners or shareholders over a period of time. Taxing authorities may require one or more of these financial statements to verify the accuracy of a company's financial accounting and reporting.