The Usefulness of Financial Statements Essay

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The Usefulness of Financial Statements

The primary means of communicating the financial effects of organizational activities and transactions of a company to outsiders is the financial reporting system. This reporting system includes communicating financial information through annual financial statements, as well as through reports filed with the Securities and Exchange Commission, voluntary forecasts, and other financial and nonfinancial releases. Financial statements are the main source of financial information conveyed to parties external to the company. The full set of primary financial statements consists of a balance sheet, income statement, and statement of cash flows. External financial statements have a general purpose
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Managers will also gain a better understanding standing of the impact of organization on cost determination and thereby gain a better understanding of the validity of the information they receive. The objective here is not to turn managers into accountants. Rather it is to turn managers into more informed users of the financial and cost information they receive from the accounting function and to be aware of information they need and re not getting.

An enterprise, or reporting entity, may consist of many components such as subsidiaries (domestic and foreign) or divisions organized along geographical or product lines. Within each of these components some or all of the essential business functions, such as manufacturing, marketing, and research, may be performed. Other functions, such as legal, finance, and corporate administration, that benefit the entity as a whole are usually performed only at corporate headquarters. Internal financial reporting is the process of reporting disaggregate financial and cost information to each of the levels of management within as enterprise. The objective of internal reporting is to provide each level of management with relevant and reliable financial and cost information to enable it to plan, control, and evaluate the performance of the organizational segment and functions under its control.

While presentation of prospective information may provide complete

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