Chapter 2, End of Chapter, Questions, Exercise 1

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Explanation

A financial accounting report is prepared to disclose the periodic performance and related disclosures of a company through the financial statements, that are, the income statement, balance sheet, statements of stockholder's equity, and statement of cash flows.

 

Financial accounting report is used to deliver information to external users such as investors, tax authorities, and so on, so as to make them aware of the growth as well as risk factors associated with the company. These people make their decision about investing or lending money on the basis of the financial statements. Also, external users need financial reporting to predict the future cash inflows, outflows, profits, and position of the company.

Verified Answer

The main objective of financial reporting is to present the financial information to the external parties such as lenders, inventors, and other creditors, in order to assist in making decisions regarding investment, lending money, future cash flows, and so on.

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