Company’s true and fair view of financial performance can be judged by its financial statements. The financial not only depicts the profit & losses but also the assets and liabilities of the company. Howsoever, one can only get the financial statements at the end of the financial year. Here is the meaning, nature and objectives of financial statements.
Financial statements are essentially reports that portray the financial data of an organization. The administration of the organization utilizes these financial statements to speak with outer partners. These consist, investors, financial or tax specialists, regulatory authorities, creditors, and so forth. Now moe further and let's know what is the nature of financial analysis
Financial statements have three parts and these are:
The financial statements are prepared using the facts concerning financial events, which are recorded sequentially. We need to initially record every one of these financial transactions and this nature of financial statement analysis. At that point, we need to process them utilizing every single material rules and methods. At last, we would now be able to utilize this information to produce financial statements. Below mentioned steps will explain the meaning of the term ‘financial statements’. state their nature, limitations and types.
In view of this comprehension, the nature of financial reporting relies upon the accompanying focuses:
We have to initially record the financial transaction in the journal and ledger to make financial statements. For this, we have to represent figures of records such as cash, fixed assets, bills receivables, and so forth.
There is a certain convention that is followed at the time of bookkeeping. We need to apply these conventions while financial statements preparation. For instance, the valuation of stock at cost or market price, contingent upon whichever is lower.
Assumptions play an important role in the financial statements preparations, apart from conventions. Postulates are essentially assumptions that one makes in the process of accounting. For instance, the going concern postulates assume that an organization will continue to exist for quite a while.
Even personal judgements and opinions play an important role in financial statements preparation. Accordingly, we need to depend on the approximate evaluation while computing things such as depreciation.
As we have already discussed the meaning and nature of financial statements, now let us move further to the objectives of financial statements.
The owner and stakeholder of an organization usually depend on financial statements to comprehend the working of the organization. Through financial statements, they could easily depict the organization’s true state of affairs. Here are a few objectives of financial statements: