Definition of Objectives in Financial Statements
The objectives of financial statements are the purpose or motives (which could include the goal of complying with the laws, understanding the basic principles of the business, assessing how strong the finances of the company reporting of performance and outcomes, the stability of financial services and liquidity to all stakeholders of the company giving confidence in the company’s ongoing concern to creditors) in which case the accounts are drawn up and then presented in front of owners of the company as well as other stakeholders.
Explanation
- Every report in the world serves a particular function. Your health report outlines your overall health condition at the time of your report. Statements from banks reveal the balance. The loan statement provides you with information regarding pending EMIs. Credit card statements specify the due date for your bill and the expenditure pattern for the last month. Electricity bills show you historical usage of energy. There are endless examples of statements that have an “specific reason”. In the same way,”Financial Statements” are also a specific purpose “Financial Statements” also have goals for their preparation.
- Objectives are the main reason that the financial statements are made by an organization. Accounting guidelines, reporting frameworks, regular reporting requirements by law-makers, and so on. All of these are in place to meet these goals.
- Balance sheet as well as income and cashflow statements (also notes that accompany them) are the main elements of financial statements. The three pillars are of what we call “Financial statements”. Each one of them is reported with a purpose.
- The balance sheet, which details the liabilities, assets and the value net of the business The balance sheet is created in order to define the financial situation of the company as of a the date of issue.
- The income statement, which outlines the amount of revenue and expenditures of the business that result in the loss or profit made by the company during the specified time frame, are prepared in order to highlight the its financial performance on a year-to-year basis.
- Cashflow statements, which define the flow of cash from finance, investing, and operational activities of the company. is prepared with the intention to define the cash flow and liquidity situation of the business throughout the time period.
Top 8 Goals of Financial Statements
Below are the 8 objectives in Financial Statements.
1. True & Fair view of the financial situation
- The balance sheet reveals the financial state of the business i.e. it lists the accounts and the obligations. The difference between these two is its net worth (i.e. book value of the company). Net worth is the sum of capital invested by the owners in addition to the profit earned until the date.
- A decrease in net worth is not a good indication of the growth. The management is given a variety of suggestions to improve the financial position.
- The financial position is reported for the current and prior year. The growth in assets is a an increase in the capacity to earn while the reduction in liabilities represents the capacity to repay of the business entity.
- This is why the most aim of being fair and honest is vital here Family Office Singapore.
2. Fair and honest perception of the financial performance
- The income statement is a summary of its financial results of the company i.e. its revenues and expenses. The difference between them represents the loss or profit made in the course of the year.
- The decrease in revenue directly effect on profits. The increase in expenses has the opposite effect of a decrease in profits.
- If the accounting guidelines are not properly followed it is a sign that management has the ability to alter the figures for expenses and revenue.
- Therefore, the truth and fairness of the income statement is an essential factor when preparing your income statements.
3. To provide information on sources
- Another reason for financial statements is to present details about the resources that are in the business (i.e. production capacity, hours of work as well as inventory, cash reserves, WIP percentages, delivery mechanisms and so on.) and its parameters of use. The report also provides information about the changes to the resources over two time periods.
- This information aids in an understanding of the business adjustments in the use and acquisition of resources aids the stakeholders in make financial decisions.
4. To provide information about the potential earnings
- Financial statements should also give clues on the potential earnings of the company. This information is only for the top management of the organization.
- Based on the asset and liability, management can determine the expansion rates.
- The three elements of financial statements will provide details about the earning capacity of an company.
- Potential for earning is also associated to the utilization of the available resources.
5. to form the basis for the decisions of the participants
- Stakeholders refer to directors, owners suppliers, customers employees, workers and finance companies, the government as well as the general public.
- Employees need to decide whether to continue working or not. Customers need to decide whether or not to place additional orders. Suppliers must consider whether they should supply or not. Finance providers must also determine if it’s feasible to provide loans towards the business. The public at large must consider whether they want they should invest into the company. Directors must decide about dividend payouts as well as raising funds, hiring more employees, acquiring resources , and many more to ensure the company’s operation is running smoothly.
- These decisions are made heavily on the financial statements How to Apply for Bank Jobs: 8 Tips For Beginners.
6. To assess the efficiency and effectiveness of the management
- Owners don’t have the time to manage the daily activities of their business, and so they assign the management to plan the future of the company’s future. Strong financials are the evidence of the effectiveness and efficiency of the decisions are made by the management.
- Effectiveness is the measure of whether the goal is being served or not. Owners can consider about whether the choice made by them in selecting the managers is right or if it is in need of modification. It also indicates whether the policies within the organization are in place.
- Efficiency refers to whether the goal can be achieved within a reasonable time. Owners can consider their decisions by studying how much gross profits are as well as those ratios of net profits in recent years.
7. to improve the understanding of the end-users.
- End users are the owner, who are the ones for whom financial statements are made. All laws of rules, standards for accounting and accounting frameworks, etc. are designed to guarantee that the comprehension of the final users.
- Financial statements provide a summary of the activities that took place throughout the year, and they must provide various disclosures to assist the owners to understand the statements in a clear way.
- If end users are able to reach a correct conclusion using financial statements, the goal can be achieved.
8. Other Goals
- to help settle disputes that arise between different parties.
- To inform the public about its credibility as an company within the financial world.
- To determine whether it is the right for the firm to replace its assets business with new ones with greater capacity
- To determine whether you should invest into other companies in order to expand the scope of the empire.
- Government officials with details about tax payments and other taxes.
Conclusion
The objectives listed are interconnected to one another and can’t be accomplished on its own. If the goals for which these financial reports are created do not meet the requirements the reason for preparing is not fulfilled. For instance, if there isn’t any truth and honest preparation those who are involved will have less faith in the company the entity. The lower confidence of individuals who have a stake in the business (i.e. directors, employees, owners lenders, creditors banks, the government) is a significant factor in the business. So, the stakeholders want to see “AUDITED” accounts. The Auditor is a person who is chosen by “Shareholders” in the organization to analyze the company’s operations and determine if those financials are authentic and accurate or not. Auditing financial statements gives assurance on the numbers and assures that the goals are achieved.