Question

uses of financial statements ​

Answer 1

ANSWER :

According to John N. Myer, "The financial 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 income statement showing the result of operation during a certain period".

❖ Some uses of Financial Statements are as follows :-

• [1] To manage the business entity : Financial statements show the financial position of a business entity. Hence, the managers can ascertain the true profit and loss with the help of financial statements. It is useful to the managers for the propose of planning decision-making controlling motivating directing and monitoring the functioning of the business entity.

• [2] Availing credit from lenders : Every business requires to borrow funds for the purpose of function ing the entity. They have to rely on the lenders such as banks or any other financial institutions to get the funds in advance. The bankers and lenders advance money to a business entity. They are interested in financial statements to ascertain short - term and long - term debt repaying and debt servicing capacity of the business entity. The short-term lenders are interested in liquidity position and long - term lenders are interested in solvency position of the borrowing entity.

• [3] Use for Government and regulatory agency : Financial statements of a business is also use by the Government and regulatory agency. They are interested in financial statements in order to assess, levy and collect sales tax, excise duty, custom duty, income tax, wealth tax etc. Information conveyed by financial statement are useful to Government for formulating industrial policy, fiscal policy for business houses as well as other connective legislation for controlling and monitoring the working of business entities.

• [4] Use for employees and researchers : Employees of a business entity use financial statements in order to assess the stability of their employment, to lodge their claim for hike in wage, share in profit, bonus etc. Again, research scholars make use of financial statements for makinv analysis and interpretation of data to derive new findings.