"Financial Statements"

*   Introduction :-

                          The Financial Statements also called 'Financial Reports' are compilations of balances of different accounts arranged in a
n effective, meaningful order called the Balance Sheet therein can be easily understood, readily interpreted, and used as basis for business decisions by the users of accounting information. The financial statements are studied and used extensively by various parties.
                          The purpose of this chapter is to study systematically the nature and purpose of financial statements and their form and content.

*   Definitions :-

                         The term 'Financial Statements' as used in modern accounting refers to two statements - the position statement reflecting the assets, liabilities and capital of a business entity on a particular date called the Balance Sheet, and the other called the Profit & Loss Account showing the results of business operations during a given period. Sometimes, Profit & Loss Account may also include a separate section to show appropriations of profit.
                         Financial Statements, often referred to as 'the package of financial statements' are supported by various schedules, annexures and footnotes. These supporting schedules and annexures are considered very much a part of the financial statements. The financial statements are summarized reports of accounting transactions. They are prepared for the purpose of presenting a periodic review of the progress by the management.

*   Purposes & Objectives of Financial Statements :-

                           Financial Statements are very useful as they serve varied affected groups having an economic interest in the activities of a business entity. Let us analyse the purposes served by financial statements.

1. Firstly, The basic purpose of financial statements is to communicate to their interested users, quantitative and objective information. This information is useful in making economic decisions.                 
2. Secondly, financial statements are intended to meet the specialized needs of conscious creditors and investors.                                                                                                                                                   
3. Thirdly, financial statements are prepared to provide reliable information about the earning of a business enterprise and its ability to operate at a profit in future. The users who are interested in this information are generally the investors, creditors, suppliers and employees.                                               
4. Fourthly, financial statements are intended to provide the base for tax assessments.                                     
5. Fifthly, financial statements are prepared in a way to provide information that is useful in predicting the future earning power of the enterprise.                                                                                                     
6. Sixthly, financial statements are prepared to provide reliable information that the changes in economic resources.                                                                                                                                                 
7. Seventhly, financial statements are prepared to provide information about the changes in net resources of the organisation that result from profit directed activities.