Financial Reporting
The objectives of financial reporting are:
- to furnish the information needed to make investment and credit decisions,
- to provide information that can be used to assess cash flow prospects, and
- to provide information about business resources, claims to those resources, and changes to them.
Accounting is an information system that facilitates the making of business decisions by measuring, processing, and communicating to decision makers the information in the form of financial statements about the transactions of a business entity. To interpret and use the financial statements, it is important to understand generally accepted accounting principles, the qualitative characteristics, and the accounting conventions that underlie the accounting information system. Ethical financial reporting means that these concepts are applied with the intent to enlighten, not to mislead.
One major use of classified financial statements is to evaluate a company's liquidity and profitability.
Two simple measures of liquidity are:
- working capital and
- the current ratio.
Five simple measures of profitability are: