Financial Accounting/Financial Statements/Objectives

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According to the Framework of International Accounting Standard, the objective of financial statements is to provide information about:

  • financial position,
  • financial performance
  • cash flow statement, and
  • changes in financial position of an enterprise.

The information contained in financial statements are useful to a wide range of users in making economic decisions.

Financial statements also show the results of the stewardship of management, or the accountability of management for the resources entrusted to it.

Financial position[edit]

Information about financial position of an enterprise as at the end of the financial period is primarily provided in a balance sheet. This shows assets, liabilities and ownership equity.

Financial performance[edit]

Information about financial performance of an enterprise during the financial period is primarily provided in an income statement or profit and loss account. This shows income, expenditure, and finally net profit.

Cash flow statements[edit]

These show information about how cash moves in and out of the business, and its allocation to departments throughout the business

Changes in financial position[edit]

Information about the changes in financial position of an enterprise during the financial period is primarily provided in a separate statement.

Notes and supplementary schedules[edit]

The financial statements also contain notes and supplementary schedules and other information. For example, they may contain additional information about:

  • the risks and uncertainties affecting the enterprise; and
  • any resources and obligations not recognised in the balance sheet such as mineral resources.

Information about geographical and industry segments and the effect on the enterprise of changing prices may also be provided in the form of supplementary information.

See also[edit]

Further reading[edit]

  • IASB. International Financial Reporting Standard

External links[edit]