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What are financial statements? What information do they provide?

What are financial statements? What information do they provide?

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Expert Solution

Statements that contain financial information about business which can satisfy the information requirements of internal and external users are known as financial statements. It serve as a source of financial information that caters to diverse information requirement of users. It is prepared with the purpose of representing a true and fair view of business.

To do so it requires the creation of three statements namely, trading and profit and loss account and balance sheet.

The financial statements related to gross/net profit or loss, the assets and liabilities. The users of information can be the following:

Current Owners: These internal users would like to know the profits in the previous accounting period and current position of the assets and liabilities.

Government: Government is an external user and want to know the financial position of a business so that stakeholder’s rights are protected.

Prospective Owner: These external users would like to know the past profits and financial position and also the future performance of the business to make an informed decision whether to invest in the business or not

Nabeel answered 1 year ago
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