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Question
State the objectives of financial statements from the view point of a business concern.
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Solution
The following points highlight the objectives of financial statements from business point of view.
1) To Provide Information about Economic Resources- Financial statements provide adequate, accurate, reliable and periodical information about the employment of economic resources. It also specifies the obligation of a business to its external users who do not have the powers or authority to access the information directly.
2) To Ascertain the Financial Position- These statements help to reveal the true financial position of an enterprise. In other words, it discloses the performance and position of an organisation in terms of their profitability, solvency, liquidity, financial viability, etc.
3) To Ascertain the Earning Capacity- These statements are prepared with an objective of providing useful information to compare, predict and evaluate the earning capacity of a business firm. Thus, it helps in ascertaining the earning capacity of firms.
4) Helps in Decision Making- These statements help the management to frame policies and decision-making process on various accounting matters.
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