Financial reporting is a requirement of the U.S. Securities and Exchange Commission. The Financial Accounting Standards Board establishes the standards for financial reporting. Financial reporting is done via financial statements. This paper is intended to give the reader an understanding of the audience, purpose and nature of financial statements as well as an understanding of the use of financial accounting information in making informed and ethical business decisions. After reading this paper, the reader should be able to (a) define a financial statement, (b) define the audience, purpose and nature of financial statements, (c) describe the four types of financial statements, and (d) explain how financial accounting is useful for making business decisions.
Audience / Purpose of Financial Statements
A financial statement is a "report containing financial information about an organization" (Answers Corporation, 2007). Financial statements are essential pieces of information for business managers, suppliers, bankers, investors, buyers, sellers, and owners. Financial statements give information about the company that is important for decision makers, particularly the owners. Owners use financial statements to analyze company wealth.
More specifically, the purpose of financial statements, including accompanying notes, is to provide information about:
a. The amount and nature of an organization's assets, liabilities, and net assets, b. The effects of transactions and other events and circumstances that change the amount and nature of net assets, c. The amount and kinds of inflows and outflows of economic resources during a period and
the relation between the inflows and outflows, d. How ...