Financial statements are prepared according to agreed upon guidelines. In order to understand these guidelines, it helps to understand the objectives of financial reporting. The objectives of financial reporting, as discussed in the Financial Accounting standards Board (FASB) Statement of Financial Accounting Concepts No. 1, are to provide information that
Is useful to existing and potential investors and creditors and other users in making rational investment, credit, and similar decisions;
Helps existing and potential investors and creditors and other users to assess the amounts, timing, and uncertainty of prospective net cash inflows to the enterprise;
Identifies the economic resources of an enterprise, the claims to those resources, and the effects that transactions, events, and circumstances have on those resources.
Preparing Financial Statements
In order to prepare the financial statements, it is important to adhere to certain fundamental accounting concepts.