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Class 12 Accountancy - Company Accounts and Analysis of Financial Statements - Chapter Financial Statements of a Company NCERT Solutions | State the importance of financial statem

Welcome to the NCERT Solutions for Class 12th Accountancy - Company Accounts and Analysis of Financial Statements - Chapter Financial Statements of a Company. This page offers a step-by-step solution to the specific question from Excercise 1 , Question 4: state the importance of financial statements to....
Question 4

State the importance of financial statements to
(i) shareholders
(ii) creditors
(iii) government
(iv) investors

Answer

(i)Shareholders- They are interested in assessing the profitability and viability of the capital invested by them in the business. The financial statements prepared by the business concerns enable them to have sufficient information to assess the financial performance and financial health of the business.

(ii) Creditors- Creditors are interested in the financial statements of businesses to learn about the status of their going concern, profitability, financing, liquidity, and cash flow. An entity is a going concern if it is likely to remain in business for the foreseeable future without going into bankruptcy.

(iii) Government- As a business owner, your financial statements offer valuable
information about your companys overall financial position, such as areas of
financial strength or weakness. Financial statements are important to tax authorities to ensure the accuracy of taxes and additional duties declared and
paid by your company.

(iv) investors- Financial statements are important to investors because they can
provide enormous information about a companys revenue, expenses,
profitability, debt load, and the ability to meet its short-term and long-term
financial obligations.

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