Usefulness and Limitations of Financial Statements

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Financial Account and Reporting Analysis (CB675) Assessment 2: Critically Assess the Usefulness and Limitations of Financial Statements To critically assess/Assessing the true usefulness of financial statements, a comprehensive investigation coveting/considering key methodologies practised in real-wold situations is crucial. There the financial statements examined will be: • income statements (IS) • statement of financial position (SFP) • cash flow statements (CFS). Deriving the benefits and drawbacks of each type of account, who uses financial statements and how they are beneficial to them will ultimately provide clarity in regards to the usefulness of financial statements for each user. -- Stakeholders (employees, public), shareholders (investors, short and long term investments i.e. fixed assets, long term incentives, board of directors (what do they care about) competitors. Income Statement (P&L) Profit and Loss accounts or Income Statements (IS) as I will now refer to them are key financial statements produced by companies for a particular period of time, usually quarterly or annually, tallying revenues and expenses resulting in what should be a neat, easy-to-read legal document publically accessible via the Companies House. The primary advantage [of IS] is the information they carries. Not only are accounts thorough and detailed, accosting for normal expenses such as costs of goods sold and operational costs, but they’re unique! Additional costs such as taxes applied to the gross income earned are reported. Moreover, revenues accrued from interest accounts and business investments are incorporated into the books. This makes IS ideal sources of complete revenue information: (and) excellent resources for competitors to compare profitability, efficiency and liquidity ratios

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