Identify and explain the two primary objectives of financial statements and the two secondary objectives of financial statements.
What will be an ideal response?
ANSWER:
The two primary objectives of financial statements are predictive ability and accountability. Predictive ability refers to the usefulness of accounting data as an aid to predicting future variables. Accountability refers to the responsibility of management to report on achieving goals for the effective and efficient utilization of enterprise resources.
The two secondary objectives of financial statements are capital maintenance and adaptability. A measure of capital maintenance gives information about the amount of dividends that can be paid during a period without returning capital to the stockholders. Adaptability is concerned with measuring total liquidity available to the firm. This is determined by measuring the exit value of the firm’s assets minus its liabilities.
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