With investor: With accounting information, investors and creditors can make informed
judgments about how advisable it is to continue to invest or lead money to the company.
Potential investors and creditors will use the published financial statements to make
judgments about whether they should to invest or lead.
Accounting is a process of
• Classifying and Recording
• Reporting and Communicating and
• Interpreting and Evaluating Financial Information
The objective of financial statements is to provide information about the financial
position, performance and changes in financial position of an entity that is useful to a
wide range of users in making economic decisions.
Accrual: Transaction or entry should be recorded and reported as it creates or incurs
within the accounting period for which it is not ecessary to have legal documentation for
transaction or entry to be recorded and reported.
Business Entity: Each business enterprise is considered to be a separate entity for
accounting purposes. All the transactions relating to that entity must be recorded and
reported, and those transactions that not related to enterprise should be excluded.
Going concern: It is assumed that the business will continue to exist for accounting
purpose. Implication is that their value in use as assets of a viable business, rather than
some firesale price that they would fetch in a forced sale situation.
Periodicity: The life of a business entity is effectively unlimited. It does not die as a
person would, and it may continue even though its shareholders pass away. It is assumed
that cutting this long life into yearly reports is a meaningful and useful exercise for the
shareholders and other interested parties. Without periodicity, companies would present
no periodic reports, and no one would know what was going on
Disclosure: There are occasions where presentations in the reports might be misleading.
The disclosure principle requires that any such situations should be disclosed, generally
by way of “note” accompanying the financial statements. Conservatism: In calculating income and