State the reasons why companies prepare financial statements and accounts. Comment on their usefulness.

Financial statements are a set of final accounts prepared by the company’s accountants which includes the trading and profit and loss accounts and the balance sheet. These statements are then used by the Management team, Banks, Investors, and Government Departments etc. for different purposes.

Firstly, the managers of the business will want to know how things are going. They need financial information in order to plan for the future; they need more up-to-date information in order to check whether actual performance is on target. This process is known as controlling the costs and finances. In accounting, it is known as management accounting. So, management accounting is done by the accountants for the managers, for the purposes of planning, controlling and measuring the successfulness of the business.

Secondly, there are several groups of people who may have an interest in the finances of the business. The law says that they have a legal right to certain information. An example...