Page 145 - DCOM409_CONTEMPORARY_ACCOUNTING

Contemporary Accounting

Notes 2. Financial statements take into consideration only the financial factors. They fail to bring
out the significance of non-financial factors which may have considerable bearing on the
operating results and financial conditions of an enterprise. For example, public image of
the enterprise, the calibre of its management, efficiency and loyalty of its workers, etc.
3. It is not always possible to discover false figures in financial statements. Unscrupulous
managements generally resort to ‘window dressing’ in the preparation of such statements.
4. Financial statements only reflect the progress and position of the business at frequent
intervals during its life. The decision regarding the period of these statements is a matter
of personal judgement and it gives rise to the problem of allocating expenditures over
various periods.
5. Financial statements though expressed in exact monetary terms, are not absolutely final
and accurate. As the balance sheet is prepared on the basis of a going concern asset valuation
represents neither the realisable value nor replacement costs. They depend on the judgement
of the management in respect of various accounting policies.

6. Financial statements are prepared primarily for shareholders. Other interested parties
have to generally make many adjustments before they use them profitably.
7. Quite often, financial statements do not disclose current worth of the business. Only
historical facts are presented and the true current worth is not reflected.

Task Prepare the proforma of key financial statements.

Self Assessment

Fill in the blanks:
13. The financial statements are based on certain accounting …………………..
14. Financial statements are prepared primarily for …………...

15. Financial statements only reflect the progress and position of the business at frequent
…………… during its life.

11.5 Summary

Accounting is the language of business throughout the world. Every business organization
keeps its financial records so that the parties interested, can have an analysis through it.
A financial statement is summarised data, collected and organised according to logical
and consistent accounting procedure.
Financial statements are the most important way of periodically presenting to parties
outside the business the information that has been gathered and processed in the accounting
system.
The accounting system generates accounting information in the form of financial reports.
There are two major categories of these reports: External and Internal.
External users have limited access to an organisation’s valuable information. The success
of their decisions depends upon the use of external reports that are reliable, relevant and
comparable.

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