Equipping Modern Enterprises with Powerful GST & E-Way Bill Solutions

logo image
  • GST Filing & Reconciliation
  • E-Way Bill Automation
  • GSTIN Search & E-Way Bill APIs

Uses of Financial Statements and their Limitations

May 27th, 2019 in Finance & Accounts

Financial statements of an organization play a very important role. Right off the bat, they show the true and fair view of the organization. They likewise help in taking significant financial data. From investors and shareholders to tax authorities, creditors and government, numerous individuals use them. Here is a list of financial statement uses:

Uses of Financial Statements

1.    Bridging the Gap in Management

Basically, the use of a financial statement is to show the financial performance of an organization. It shows the assets, liabilities, profit and loss of an organization during a period of time. They show how fruitful the decision of an organization has been. Since investors approach these statements, they can determine the performance of the company easily. This further helps in bridging the gap between planning and results.

2.    Availing Credit from Lenders

Each business needs to acquire assets for working. For this reason, they need to depend on loans like banks and financial institution. And in loan approval, the financial statements play a very crucial role. Since they demonstrate an organization’s liabilities, profits and losses, investors can utilize them to settle on decisions that are informed.

3.    Use for Government

Government rely on these financial statements to frame governmental policies for corporates. As these statements show how the companies are working. The administration can utilize this data to assess the tax and to form strategies or policies.

4.    Use for Investors

Investors likewise broadly utilize the financial statements to access the funds of an organization. That encourages them to know how the organization’s dissolvability will be. In this way, the better financial position of an organization will attract greater investments.

5.    Use for Government

Government rely on these financial statements to frame governmental policies for corporates. As these statements show how the companies are working. The administration can utilize this data to assess the tax and to form strategies or policies.

5. Use for Stock Exchanges

SEBI and the stock exchanges like BSE and NSE also utilize financial statements for various reasons. SEBI can survey an organization’s internal matter utilizing them to guarantee the protection of investors. And to frame their quotes even stock advisors needs these financial statements. They are likewise an extraordinary wellspring of data for stockbrokers and financial specialists.

6. Information on Investments

The investors of an organization depend on these financial statements to see how their investments are performing. In a case, if the organization is profitable there are chances that it may invest more money. On the other hand, investors can even withdraw the amount invested once they see losses or stagnant profits.

In spite of these uses of financial statements, there are a few limitations to them also.

Limitations of Financial Statements

1. Not a reflection of the present Financial Position

The balance sheet reflects the position of an organization on the date it was prepared as it is prepared at the end of every financial year. Howsoever, it is difficult to ascertain the position of the company during any period of time as the purchasing power keeps on fluctuating.

2. Probability of Bias

There are probabilities that the financial statement does not provide the correct position of the company. This might happen as the accountant uses various accounting method, policies and convention as well as personal judgements.

3. The Absence of Important Information

Accountants may avoid a ton of indispensable data while preparing financial statements. For instance, the nature of understandings signed by the organization is significant information, however, it is never referenced in yearly statements.

4. Lack of Qualitative Information

Despite the fact that organizations depict their numbers and funds in yearly statements, a great deal of subjective information is skipped. Subsequently, the details of the company, efficiency, and so forth are commonly absent from these statements.

5. Lack of Details

Financial statements may express the assets total value, however, they don’t uncover the assets nature. So also, a ton of details like these do not discover notice.

 

 

Reduce GST Compliance

Reduce GST Compliance

E-Way Bill through Tally

E-Way Bill through Tally

GST Suvidha Kendra

Want to open GST Suvidha Kendra