Question

What are the basic Financial statements and which one is most important?

Answer 1

Solution:

The basic financial statements are Balance Sheet, Income Statement and Statement of cash flows.These financial statements represents the whole picture of finacial conditions and results of a business. All the financial statements are most important though importance of the same is dependent on needs of the user. For example:

Auditor perspective : Auditors audit the balance sheet, so balance sheet is the document that they have the greatest interest in.

Investor perspective : Investor analysis of share value is largely based on cash flows, therefore most important financial statment from prespective of investor is "Statement of Cash Flows"

Management perspective: Managers are responsible for results of the business, therefore most important financial statment from prespective of mangement is "Income Statement"