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Purpose of financial statements

For each financial statement , ie Balance Sheet , Statement of Income , Statement of Stockholders Equity and Statement of Cash Flows :

-Summarize what the purpose of the financial statement is .

-Provide a brief outline of how you would read the financial statement . What would be important to you when you are reading the statement and why. What line items would you focus on and why. How would you use the financial statement to help you make decisions

Solution Preview

Dear student,

Financial statements consist of profit and loss account, Balance sheet, statement of stockholders' equity and the cash flow statement. Profit and loss account depicts the operating efficiency of the company and it shows whether the company has earned profit or loss during the particular financial year. Balance sheet shows the financial position of the company on the particular date i.e., usually at the end of the financial year. Cash flow statement shows the cash flow from operation and the inflow and outflow of cash and shows the solvent position of the company. Statement of stockholders' equity shows the amount of equity capital in the beginning, the profit earned /loss incurred in the year, the amount of dividend (both stock and cash dividend) declared during the year and the amount of shareholders' equity at the end of the year.

1. Balance sheet shows the financial position of the company on a particular date usually at the end of the particular financial year. Balance sheet informs us the amount of ...

Solution Summary

The answer contains the purpose of preparing Balance Sheet , Statement of Income , Statement of Stockholders Equity and Statement of Cash Flows and also explains which lines in the statements are important and how the financial statements are helpful in taking decisions.

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