CHARACTERISTICS OF FINANCIAL STATEMENTS

CHARACTERISTICS OF FINANCIAL STATEMENTS:

The following points highlight the nine characteristics of financial statements, i.e, 
1. Depict True Financial Position
 2. Effective Presentation 
3. Relevance
 4. Attractive
 5. Easiness 
6. Comparability
 7. Analytical Representation
 8. Brief
 9. Promptness.

1. Depict True Financial Position:

The information contained in the financial statements should be such that a true and correct idea is taken about the financial position of the concern. No material information should be withheld while preparing these statements.

2. Effective Presentation:

The financial statements should be presented in a simple and lucid way so as to make them easily understandable. A person who is not well versed with accounting terminology should also be able to understand the statements without much difficulty. This characteristic will enhance the utility of these statements.

3. Relevance:

Financial statements should be relevant to the objectives of the enterprise. This will possible when the person preparing these statements is able to properly utilize the accounting information. The information which is not relevant to the statements should be avoided, otherwise it will be difficult to make a distinction between relevant and irrelevant data.

4. Attractive:

The financial statements should be prepared in such a way that important information is underlined so that it attracts the eye of the reader.

 5. Easiness:

Financial statements should be easily prepared. The balances of different ledger accounts should be easily taken to these statements. The calculation work should be minimum possible while preparing these statements. The size of the statements should not be very large. The columns to be used for giving the information should also be less. This will enable the saving of time in preparing the statements.

 6. Comparability:

The results of financial analysis should be in a way that can be compared to the previous years statements. The statement can also be compered with the figures of other concerns of the same nature. Sometimes budgeted figures are given along with the present figures.

The comparable figures will make the statements more useful. The Indian Companies Act, 1956 has made it obligatory to give previous years figures in the balance sheet. The comparison of figures will enable a proper assessment for the working of the concern.

 7. Analytical Representation:

The information should be analyzed in such a way that similar data is presented at the same place. A relationship can be established in similar type of information. This will be helpful in analysis and interpretation of data.

 8. Brief:

If possible, the financial statements should be presented in brief. The reader will be able to form an idea about the figures. On the other hand, if figures are given in details then it will become difficult to judge the working of the business.

 9. Promptness:

The financial statements should be prepared and presented at the earliest possible. Immediately at the close of the financial year, statements should be ready.