Objectives and Importance of Financial Statements

OBJECTIVES OF FINANCIAL STATEMENTSTo provide assistance in Decision making of a business is the primary objective of a financial statements. According to the Accounting Principles Board of America, followings are the objectives of financial statements:-

1. Financial Statements provides accurate picture about economic resources and obligations of a business concern.
2.  Financial Statements provides the information which helps the management to make changes in economic resources and obligations.
3.  Financial Statements provides the true and accurate information that there are any changes in net resources arising out of business activities.
4.  Financial Statements provides information which assists the management in calculating the earning possibilities of business.
5. Financial Statements provide all the information which is very important for the user to understand all the things of the business..

IMPORTANCE OF FINANCIAL STATEMENTSIt is true to say that the financial statements are those mirror in which the financial position and operating strength or weakness of the business are reflects. There are lots of parties for whom financial statement is very useful. These are the following:-Owners:-The funds for operating the business is provided by the owner and the owner keep his eye on the business to know whether the funds in the business are utilized properly or not.  In the regards, financial statements help him to know true and accurate picture of the business. Management: -The main work of the management to make strategy to increase the business and get things did by others. It is very necessary for management that the employees do their work properly to achieve the goal of the business. Financial statements help the management to know the performance of the employees. It is easy for the management to measure to actual result achieved by the employee and if there is any short fall in the performance of the employee, remedial action will be taken to improve this. Creditors:- It is very important for a creditors to know the financial position of a business firm before giving any loans and granting credit to them. Financial statements help the creditors to know the true and accurate financial position of the firm and on the basis of that, he will decide whether he can give loans to the firm or not. And if yes, how much loan can be granted to that firm. Employees:-Every employee wants to work with an organization whose financial position are sound. Employees are interested to know the profit of the business because in many firms bonus of the employees is depending upon the size of profit they earned. Government:-For the purpose of taxation for a particular period,  Central and State governments are interested in the financial statements of the business to know the earning.Customers: -Customers use Financial Statements to know whether the firm in the future has the resources to ensure the regular supply of goods. When a customer is depend upon the firm for a special type of component, it is essential for them to know the financial position of the firm.Suppliers: -Suppliers study the Financial Statements of the firm to know that whether it is good to supply goods on credit or not. They come to a point by studying the financial statement that they will be repaid or not.
There are also some parties who are in interested in the financial position of the firm such as Investors, Bankers, Research Scholars, etc.