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what are the objectives of prepearing financial statement
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Objective and Importance:
(i) Knowing Profitability of Business:
Financial statements are required to ascertain whether the enterprise is earning adequate profit and to know whether the profits have increased or decreased as compared to the previous year(s), so that corrective steps can be taken well in advance.
(ii) Knowing the Solvency of the Business:
Financial statements help to analyse the position of the business as regards to the capacity of the entity to repay its short as well as long term liabilities.
(iii) Judging the Growth of the Business:
Through comparison of data of two or more years of business entity, we can draw a meaningful conclusion as regard to growth of the business. For example, increase in sales with simultaneous increase in the profits of the business, indicates a healthy sign for the growth of the business.
(iv) Judging Financial Strength of Business:
Financial statements help the entity in determining solvency of the business and help to answer various aspects viz., whether it is capable to purchase assets from its own resources and/or whether the entity can repay its outside liabilities as and when they become due.
(v) Making Comparison and Selection of Appropriate Policy:
To make a comparative study of the profitability of the entity with other entities engaged in the same trade, financial statements help the management to adopt sound business policy by making intra firm comparison.
(vi) Forecasting and Preparing Budgets:
Financial statement provides information regarding the weak-spots of the business so that the management can take corrective measures to remove these short comings. Financial statements help the management to make forecast and prepare budgets.
(vii) Communicating with Different Parties:
Financial statements are prepared by the entities to communicate with different parties about their financial position. Hence, it can be concluded that understanding the basic financial statements is a necessary step towards the successful management of a commercial enterprise.
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what are the objectives of prepearing financial statement Related: NCERT Solution - Chapter 1 : Financial Statements - I (Part-1), Class 11, commerce
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what are the objectives of prepearing financial statement Related: NCERT Solution - Chapter 1 : Financial Statements - I (Part-1), Class 11, commerce for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about what are the objectives of prepearing financial statement Related: NCERT Solution - Chapter 1 : Financial Statements - I (Part-1), Class 11, commerce covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for what are the objectives of prepearing financial statement Related: NCERT Solution - Chapter 1 : Financial Statements - I (Part-1), Class 11, commerce.
what are the objectives of prepearing financial statement Related: NCERT Solution - Chapter 1 : Financial Statements - I (Part-1), Class 11, commerce for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about what are the objectives of prepearing financial statement Related: NCERT Solution - Chapter 1 : Financial Statements - I (Part-1), Class 11, commerce covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for what are the objectives of prepearing financial statement Related: NCERT Solution - Chapter 1 : Financial Statements - I (Part-1), Class 11, commerce.
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