What is a financial statement and explain in detail? Meaning of Financial Statements Financial statements are statements that present a factual view of a company's financial performance at the end of an accounting year. Represents the official record of financial transactions that occur in an organisation. These statements help information users determine the company's financial position, liquidity and performance. Use and Limitations of Financial Statements A company's financial statements perform several important functions. First, it reflects the actual state of the organisation. It also helps capture important financial information. It is used by many, from shareholders and investors to governments and lenders. Let's understand some of the uses of Financial Statement Preparation in Washington Use of Financial Statements 1. Resolving the Management Gap Financial statements primarily reflect a company's financial performance. They show the company's profits and liabilities.It shows how successful your company's decisions are. Because shareholders have access to these statements, they can evaluate the company's performance. This further helps close the gap between management error and owner expectations. 2. Getting credit from a lender All businesses need money to function. To do this, they have to rely on lenders such as banks and financial institutions. Personal Financial Statements in New York play a big role in this purpose. Investors can use it to make informed decisions because it shows a company's liabilities, liabilities, and earnings. 3. Use for Investors Investors widely use a company's financial statements to evaluate its financial condition. This gives you an idea of what your company's solvency will be in the long run. Therefore, the better the financial position of the company, the more investments it receives. 4. Use for Government Government policy towards businesses relies heavily on financial statements. This is because these statements generally describe how the Company operates. Governments can use this information to make tax and regulatory policy decisions. 5. Use of stock exchange Regulators such as SEBI and stock exchanges such as BSE and NSE also use financial statements for a variety of reasons. SEBI may use it to evaluate the internal workings of companies to ensure investor protection. Stock advisors also need to construct quotes. They are a great source of information for stock traders and investors. 6. Investment information Company shareholders rely on these statements to understand how their investments are performing. If the company is making a profit, it may decide to invest more money. Conversely, stagnant gains or losses can also trigger them to drag down. Despite all these uses of financial statements, there are also some limitations. Limitation of Financial Statements 1. Does not reflect current financial situation First, financial statements do not show how well a company is performing in the current period. Due to the fact that it is prepared at the end of each fiscal year. Therefore, we only depict performances from the previous 12 months. As the purchasing power of money changes, so do the values of assets and liabilities. 2. Possibility of prejudice Financial statements do not always accurately represent a company. This is because many of the accountants rely on their personal judgments, conventions and internal procedures. 3. Lack of key information Accountants can overlook important information when preparing financial statements. For example, the nature of the contracts signed by the company is important information, but not mentioned in the annual report. 4. Lack of qualitative information Companies present figures and financial information in their annual reports, but most of the qualitative data is omitted. Therefore, details such as a company's labour relations and employee productivity are generally not included in these statements. 5. Lack of details Financial statements may state the total value of assets, but do not indicate the nature of these assets. Similarly, finer details like this remain mostly unresolved. Importance of Financial Statements The importance of financial statements prevails in the service of persuading the various interests of various groups such as creditors, the public, management, etc. Importance to management: The increasing scale and complexity of factors affecting business functions require a scientific and strategic approach to managing modern business challenges. Management teams need up-to-date, accurate and structured financial data for their purposes. Financial statements help executives understand the progress, prospects, and status of their business counterparts in their industry. Materiality to Shareholders: Where management of the company is separated from control. Shareholders cannot participate in the day-to-day Business Accountants . However, the results of these investigations must be disclosed to shareholders in the form of financial statements at the shareholders' meeting. What is the purpose of financial statements ● The main purpose of financial statements is to provide and record information about a company's financial position and changes in its financial position. Decision makers use this information to grow the business economy. ● There are many individuals and groups that benefit from a financial statement review. Sharing the financial statements of the company with management and outsiders might assist the company in making future financial decisions and goals. ● Executives use financial statements to make decisions about future growth or changes that benefit earnings. Knowing your financial status and operating cash flow allows you to make day-to-day decisions that affect the future of your organisation. ● Financial statements are used by stakeholders to analyse the risk and sustainability of investment returns. This information can be used to make individual investing decisions. ● Potential investors use financial statements in the same way as shareholders, but as a tool to assess the risks of investing in a company now or in the future. Using current earnings, financial statements allow you to anticipate future dividends. In addition, risk factors can be assessed based on the information in the financial statements. ● Top Accounting Firm in Washington is a professional accounting firm and should be appointed regularly to audit your business. If there are any defects or issues requiring resolution, the Company will be alerted accordingly. ● Banks/lenders use financial statements to assess the risk of lending more to a company. Your creditworthiness and financial soundness can be determined by reviewing your financial statements. Most loans must be backed by assets and equity, preventing bad debt. ● Vendors, like banks and lenders, use financial statements to assess credit quality losses. Before opening a line of credit, the supplier must ensure that the company is in good financial condition and has a history of paying down debt in a timely manner. This is especially true if your supplier provides special or high value items that are essential to your company's success. ● Customers are on opposite ends of the spectrum and use financial statements to determine if a company is a good supplier to them. Examining a company's financial strength and stability might assist predict a steady supply of required products.