Explain the nature of the financial statements.

Explanation

Nature of monetary Statements:-


Financial statements square measure ready victimization facts regarding events, that square measure recorded chronologically.

Thus, we've got to 1st record of these facts in financial terms. Then, we've got to method them victimization all applicable rules and procedures. Finally, we are able to currently use all this knowledge to come up with monetary statements.



Based on this understanding, the character of monetary statements depends on the subsequent points:



Recorded facts: we want to 1st record facts in financial kind to make the statements. For this, we want to account for figures of accounts like mounted assets, cash, trade assets, etc.


Accounting conventions: Accounting Standards impose sure conventions applicable within the method of accounting. we've got to use these conventions whereas making ready these statements. as an example, the valuation of inventory at value value or market value, counting on whichever is lower.


Postulates: except conventions, even postulates play an enormous role within the preparation of those statements. Postulates square measure essentially presumptions that we have a tendency to should build in accounting. as an example, the going concern postulate presumes a business can exist for a protracted time. Hence, we've got to treat assets on a historical value basis.


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