Financial accounting information is historical in nature, reporting on what has happened in the past. To...

Financial accounting information is historical in nature, reporting on what has happened in the past. To facilitate comparisons between companies, this information must conform to certain accounting standards or principles called generally accepted accounting principles (GAAP).

Please discuss this statement, emphasising the importance of a user of financial statements being able to compare financial statements prepared by different companies.

Expert Solution

Answer-Yes it is true that, financial accounting information is historical in nature, reporting on what has happened in the past. To facilitate comparisons between companies, this information must conform to certain accounting standards or principles called generally accepted accounting principles (GAAP).

The financial statements are very useful for its users.It is the duty of the financial statement to satisfy their users which include different parties such as management ,creditors,public and many more.

Financial statements provide valuable summaries and information about the company by organising the information and providing the users in the simplest form to understand.

It is very important for a user of financial statement to understand the statements provided by different companies and compare them with each other. This makes the clear picture in the mind of the user about each and every aspect of the company.There are three types of financial statements and each of them gives different kind of information.

*Financial statement is important for its management to analyze the working of a company.

*Financial statement is important to its shareholders,as shareholders cannot take part in the day to day activities of the companies,but these financial statement provide the information to its shareholders in the annual general meeting.

*It is equally important to creditors also,as they can compare about that in which company the investment will be profitable.

These all importance to the users are only possible if they can understand the statement and can make comparisons, otherwise it will be of no use.The company should follow GAAP to make their financial statements.

ekkarill92 answered 1 year ago

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