About Financial Statements


Financial statements are a structured financial representation of the financial position and financial performance of an enterprise. The objective of general purpose financial statements is to provide information about the financial position, performance and cash flows of an, enterprise that is useful to a wide range of users in making economic decision. Financial statement also shows the results of management’s stewardship of the resources entrusted to it. To meet this objective financial statements provide information about an enterprise’s.

  1. Assets;
  2. Liabilities;
  3. Equity;
  4. Income and expenses, including gains and losses;
  5. Other changes in equity; and
  6. Cash flows.

This information, along with other information in the notes to financial statements, assists users in predicting the enterprise’s future cash flows and in particular the timing and certainty of the generation of cash and cash equivalents.

Such financial statements will meet the needs of most users. The information is however, restricted; because

  • It is based on past events not expected future events.
  • It does not necessarily contain non-financial information

what is……?

  • Financial position
  • Financial performance
  • Change in financial position

The users require information regarding the ability of the enterprise to generate cash and cash equivalents and of timing and certainty of their generation. The ability ultimately determines the capacity of an enterprise to pay dividends, its suppliers and its employees, meet interest payments and repay loans. These information needs are better fulfilled if they are provided with information of financial position, performance and changes in financial position of an enterprise.

Financial position

The financial position of an enterprise is affected by: –

  • The economic resources it controls
  • Its financial structure
  • Its liquidity and solvency

Financial Performance

This information is important in determining

  • The potential changes in the economic resources that the entity likely to control in the future
  • The variability of performance which is important to predict the future cash flows from its existing resources

Changes in Financial Position

This information is important to: –

  • Assess the operating, investing and financing activities
  • Provide the information regarding the entity’s ability to generate cash and cash equivalents
  • Assess the need of the resources generated