Financial statements (or financial reports) are formal records of the financial activities of a business, person, or other entity. In other words, financial statements are records that provide an indication of an individual’s, organization’s, or business’ financial status.
Purpose of Financial Statements
The purpose of a financial statement is to enable a business to establish the result of its operations over a period of time and to determine its worth at a particular date. Financial statements are used by users for different purposes. Some of these are mentioned below:
1. Owners and managers require financial statements for making important decisions which may affect its continued operations.
2. Employees require these reports in making collective bargaining agreements with the management in case of labour unions while discussing their various issues.
3. Prospective investors make use of financial statements to assess the viability of investing in a business.
4. Financial institutions like banks use these financial statements whether to grant a company with fresh working capital or extend debt securities to finance expansion and other significant expenditure.
5. Government entities need these statements to ascertain the accuracy of the taxes declared and paid by the company.
6. Vendors who extend credit to a business require financial statements to assess the creditworthiness of the business.
7. Media and the general public are also interested in financial statements for a variety of reasons.