Purpose of Preparing Financial Statements

Although there are a number of different types of financial statements but the most important of all those are the income statement, the balance sheet and the statement of cash flows. All these statements are designed and prepared for different purposes. The income statement of the business describes the ability of the business to generate profit. This statement shows whether the business is able to earn profit with the help of its operations. In addition to that the income statement helps in estimating the sales volumes, the types of expenses incurring in the business and the aggregation of the expense.

On the other hand the balance sheet of the business shows the current financial status of the business up to the date issued on the balance sheet of the business. With the help of balance sheet a business can access information about the liquidity, funding state of the business, debt position of the business that is calculated with the help of number of different financial ratios.

Another statement is of cash flow of statement that shows the flow of the cash within the business that means the disbursement of the cash within the business and the nature of cash receipts, cash inflows and cash outflows of the business.

With the help of these statements the high level management takes the decision related to the credit allocation to the different operations of the business. Investors take all the decisions regarding the investment within the business by reviewing the financial statements of the business.

Other Related Accounting Articles:

• How to prepare a Cash Flow Statement
• Statement of Retained Earnings
• Balance Sheet Reserve
• Comparative Balance Sheet
• Single Step Income Statement
• Budgeted Income Statement
• Classified Balance Sheet