Introduction
All businesses, regardless of size, are made up of similar traits and characteristics. Besides the physical items like real estate, building, desks, counters, and inventory, businesses are composed of financial and accounting information. In order for a business to be successful, financial and accounting information must be reduced to a tangible form so the information will be useful. The financial information is typically found in a firm’s financial statements and managerial reports. This paper will identify the audiences, purposes, and natures of financial statements. Finally, the use of the financial accounting information will be discussed in order for the business to make informed and ethical business decisions.
Audience, Purposes, and Natures of Financial Statements
The two main audiences for a firm’s financial statements can be considered as internal or external. Internal audiences include management, owners, and other employees interested in keeping tabs on the financial health of the corporation. Shareholders, investors, financial institutions who are interested in the firm’s credit worthiness and government entities such as the IRS are all external audiences for corporations’ financial statements. Regardless of the audience, the main purposes of a firm’s financial statements are to provide an accurate picture of how the company is performing in the marketplace.
The three main types of financial statements are the income, balance sheets, and statement of cash flows. The income statement will show the firm’s profitability or bottom line by outlining income and expenses over a given period. One must keep in mind that the income stat ...