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The objective of financial reporting is broken down into three points. This all began in the
1970’s when FASB drew up three objectives of financial reporting. One, be useful to
investors and lenders. Second, help determine a company’s cash flow. Finally, report the
company’s assets, liabilities, and owner’s equity. In regards to one, the reporting needs to
provide information that is useful to present and potential investors, and similar parties
making decisions. When determining a company’s cash flow you must focus on timing an
uncertainty of cash receipts. The non-governmental body FASB enforces the use of
US-GAAP compliant statements. The general-purpose financial statements help meet the
objective by presenting the information in four reports. These reports are; balance sheet,
income statement, statement of cash flows, and statement of owner’s equity. The balance
sheet presents that snapshot of the company financial situation, and most importantly the
amount of debt it is carrying. While the income statement lays out how revenue is
generated and expenses allocated. The one drawback to the income statement is that only
shows the total you earn and what is expensed out, but the statement of cash flows
illustrates the movement of cash. The last report is the statement of owner’s equity which
is the most important aspect of the general purpose financial. The investors see what their
getting for the money they invested, and distributions to owners. The general purpose
financial statements are not designed to show the value of a reporting entity, but they
provide information to help existing and potential investors, lenders, and other creditors to
estimate the value of the reporting entity.
