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Question 1 of 12 -13 View Policies Current Attempt in Progress What is the objective of financial reporting? How do general-purpose financial statements help meet this objective. В І у т т L = = . a O Words Save for Later Attempts: 0 of 1 used Submit Answer

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Financial Reporting refers to a astandard set of practices which intends to give an accurate depiction of a company's financial information.The purpose of financial reporting is to analyze the financial health of an entity by interpreting the usage of resources of the business, efficiency of performance, cash flow etc. The main objectives of financial reporting are as follows;

1. To provide information to investors for enabling them to understand how their capital will be used in the business and the expected return they could generate from the amount being ivested. Financial reporting helps the investors to decide whether the entity is a good place for them to invest their money or not.

2. To monitor Assets, liabilities and Owner's equity and track changes in them in order to interpret the availability of resources in the future which are important for the business's growth prospects. Also financial reporting aims to provide early warning signals and valuable insights to the managers for deciding what changes are needed to take at present to cope with the challenges that may arise in the future.

3. To monitor/ track entity's cash flow; For every business there are a varied number of stakeholders who are keen to interpret the financial information about the business. There may be lenders who have provided loan to the entity who may want to interpret the ability of the entity to pay off the loans, there could be prospective investors who want to analyze the entity's earning capacity to come up with an investment decision. A report on Cash flows will enable the users of financial information for meeting their needs and take proper financial decisions.

As already stated, the primary objective of financial reporting is to provide current and potential investors and creditors with useful information that can guide them in taking various financial decisions. General-purpose financial statements plays a greater role in meeting the objectives of financial reporting. There are four general-purpose financial statements that are geared towards meeting such objectives.

1. Balance sheet: It provides a snapshot of the company's assets, liabilities, equity that is, the general financial health of the business as on a particular day. It helps the suppliers or lenders to understand whether there are enough financial assets in the business or how much debt the business is carrying at present, how well the entity is managing its inventory etc.

2. Income statement: It explains how much net revenue the business earns over a span of time. By analyzing the Income statement, the user of the financial statement will be able to understand whether the business is running profitable or at losses, and explains how the profit is being made.

3. Cash flow statement: A major drawback about the Income statement is that it explains only the money that is earned by the business over a span of time - not how much quantum of cash is actually coming and going out of the business. The statement of cash flow tells the observers how the cash is being managed in the business and how much cash is left over in the business as on the reporting date.

4. Owner's equity statement: Equity is the difference between the value of Assets and Liabilities. The Statement of Owner's equity tells the potential investors how much they would get by investing their money in the business either by way of cash or as equity in the company.