Q2Q - Intermediate Accounting (Kieso)

Question

What is the primary objective of financial reporting?

Step-by-Step Solution

Answer

The primary objective of financial reporting is to provide useful information, track cash flows and deal with liabilities. 

Step 1: Definition of Financial Reporting

Financial reporting is the crucial process of providing key information regarding the financial activities and performance of the business over a specified period, mostly on a quarterly or yearly basis.

The key financial reporting objectives are tracking cash flows, evaluating assets and liabilities, analyzing shareholder’s equity, and measuring profits.

Step 2: Primary objectives of financial reporting

There are three primary objectives of financial reporting. They are:

· Financial reporting helps the users of accounting information by providing information that is beneficial to them in making investment and credit-related decisions.

· It also helps the investors, creditors, and other users find the amount, timing, and uncertainty of future cash flows.

· Financial reporting also helps in knowing about the firm’s economic resources, claims, and changes in those claims to resources.