Financial statements are formal records of the financial activities and position of a business, organization, or individual.
• These statements provide a summary of the entity’s financial performance and position over a specific period, typically at the end of an accounting period.
• They provide financial position through the balance sheet and financial perfromance through income statement.
• Financial statements are crucial for stakeholders, including investors, creditors, management, and regulators, as they offer insights into the entity’s economic health and aid in decision-making.
Objectives of Financial Statements:
The objectives of financial statements revolve around providing relevant and reliable information to various stakeholders, helping them make informed decisions about the entity’s financial health and performance.
The primary objectives include:
- To provide the financial information to the internal and external users.
- To provide information about the financial position, financial performance and cash flows of an entity.
- To reveal the profitability and solvency of the company.
- To help provide the information for decision making.
Limitations of Financial Statements:
The followings are the main limitations of financial statements:
- Based on past financial events and activities.
- Ignores qualitative aspect of the organization.
- Ignores inflation and change of price level in the market.
- No record of intangible assets.
- Provide quantitative information only.
