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Financial statement is a statement that provides valuable source of information for business managers and all who work within the business, also for potential investors and their business.(Keith pilbeam 1998 international finance) The financial assets of a business merely represent claims on real estate and also the financial asset play a very crucial role in developed economy( mai grow hill 2008 investment) This includes an income statement a balance sheet and cash flow statements. They are usually compiled on a quarterly and annual basis. There fore the general purpose of a financial statement is aimed to meet the need of a wide range of users (Pauline weetman 2006 finance and management)
The financial statement explains the financial position of an organisation and normally the owners, managers, investors, bank, and the government are the main people interested in a business financial statement. They are likely to be various users grouping with an interest in organisation in the sense of needing to make decision about the organisation. ( atrill & Eddie McLane 2002 management accounting)
A manager is a person who's in charge of an organisation and most tasks are supervised and obligated by him or her in a business organisation. They mainly have a staff of people who are below them in the business. A manager is one of the people who are highly interested in the business financial statement. This is because the statement helps them know the resources that are in the business position as well as the claim of these resources. The managers also get to know the profitability of the company and the return made on capital as well as the total business expenses. The statement makes the mangers aware of the business operating performances as well as they will get to know the assets turn over and the liquidity of the business. These will help them manage day to day activities of the business and evaluate potential credit customers and key suppliers
Employees are also interested in the business financial statement .They are people who work under particular businesses or organisation. Most business will hope to have efficient and effective employees so that they can have high profit. Effective and efficient employees are very important to an organisation and they are also interested in a financial statement mainly because it helps them in making a collective bargaining with the managers in aspects such as promotions ranking or in case of labour union.
Investors are the main risk takers they invest the capital in the business and their main expectation is high profit return. Their main concern is to minimise risk of the business so that they can earn high profit. Investors are also interested in the financial statement of a business and this is mainly due to they get to know the business profit and performance and if there are in a safe position as well as if the business is making profits and not losses. Investors also use the financial statement in analysing the business financial position which also provide them with decision making bases and there fore are able to make important decisions very easily and careful.
Bank is a financial institution in money making they are large corporation in money lending business. Banks are highly responsible in lending money to entrepreneurs and there fore provide a variety of loans to investors. Most banks are interested in the financial statement of a business this is because they get to know the business position before lending them money and nevertheless they avoid any misjudgement which might occur. This is also because they get to know if the business will be worthy of giving money to as well if they might be able to pay back at the right moment and make profit through the interest that they receive from the money they have lend
Government is the head of a country's state. It is highly responsible for almost every aspect in the economy of its country. The government need the financial statement of a business to as certain the propriety and accuracy of taxes and other duties declared and paid by different companies in the country. This is very important especially in controlling the country's inflation rate as well as in insuring a proper and satisfying economy of its country
Accounting concepts are the ground rules of accounting that are followed in preparation of all accounts and financial statement.
The going concern this is an assumption that the business will continue to trade into the foreseeable future. This also assumes that the business entities for which accounts are being prepared is solvent and viable
Consistency concepts are when the same principle for constructing accounts will be maintained from one set of accounts to the next. This is when an entity has chosen a method of accounting the same method should be used except for a sound reason to do other wise any change in the accounting methods must be disclosed
Accruals concepts the revenues and cost are recoded when they occur rather than when the cash is received or paid and they are recorded in the accounting records and reported in the financial statement of the period to which they relate.
Materiality concepts this is when the financial transaction should be shown separately if by lamping them together by other transactions the user of the accounts might be mislead relevantly minor events may be ignored, but the major ones should be fully disclosed
Historical cost this requires the transaction to be recorded at the price ruling at the time and for assets to be valued at their original price. This approach is the one that use the accounting principle of historical cost and it resembles with approaches such as current cost accounting the term historical cost may also be used to contrast or refer to a particular cost calculated in this way
Even though the use of historical cost accounting does not include routine adjustments for inflation, the cost still needs several adjustments when calculating the book value the most important of these are depreciation, depletion and impairment
In addition, although current accounting standards are largely based on historical cost accounting, there are some exceptions such as the use of fair value net realisable value and other revaluations and the main advantage of using this accounting concept is simplicity and certainty but its major problem is that book value might be based on badly out of date cost this becomes more of a problem during the periods of high inflation
Monetary concept this is an important issue for auditors of financial accounts as we can see from the application of accounting standards and policies the preparation of accounts involve high degree judgment where decisions are required about the appropriateness of a particular accounting judgment