Question

State two basic objectives of preparing financial statement?​

Answer 1

ANSWER :

❒ Two basic objectives of preparing financial statements are as follows :-

• [1] To ascertain the true and fair view of financial position : Financial statements are prepared by a business to ascertain the financial position of the business. Gross profit or gross loss is ascertained through Trading Account, then net profit or net loss is ascertained through Profit and Loss Account and the position of Assets and Liabilities is ascertained with the help of Balance Sheet. At the end of a accounting year, a businessman always wants to know the profit earned or loss incurred by the business as well as the state of assets and liabilities of the business. It can be done with the preparation of financial statements.

• [2] To provide information to the parties interested in financial statements : There are various groups of parties interested in the financial statements of a business. The owners, managers, creditors, bànkers and lenders, employees, Government and regulatory agencies etc. are some parties who need to know the financial information at various point of time for different reasons. Therefore, a business prepare the financial statements at the end of accounting year so that they can provide the financial information to those interested parties whenever they needed.

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KNOW MORE :

❒ Financial Statements :-

According to John N. Myer, "The finańcial statements provide a summary of the accounts of a business enterprise, the Balance Sheet reflecting the assets, liabilities and capital as on a certain date and the Incóme Statement showing the results of operàtions during a certain period."

• "Financial statements portray the financial effects of transactions and other events by grouping them into broad classes according to their economic characteristics" (ICAI).

• Financial statements are statements relating to financial matter of an organization. Financial statements are also known as Final Accounts.

• In case of a sole proprietor-ship form of business, Trading Account, Profit and Loss Account and the Balance Sheet are the components of Finańcial Statements or Fińal Accounts.