The General Purpose of Financial Reports

Topics: Financial statements, Debt, Generally Accepted Accounting Principles Pages: 2 (575 words) Published: February 2, 2013
1. Sets out what information is provided in the general purpose financial statements of a potential borrower (e.g. financial statements provided to the Bank by a company seeking to borrow money) that would be of interest to a member of the lending department and why;

General purpose financial reports are required to by the Bank to help it evaluates better loan decisions to borrowers. The general purpose financial statements should include the following three primary statements: the balance sheet, the income statement, and the cash flow statement so that companies can be evaluated. The balance sheet is useful to the lending department because it gives a general financial condition of companies at a given point of time by including the companies’ assets, liabilities, and owner's or stockholders' equity. More detail or no? ( talk about what the assets, liabilies, and equity?) The income statement, also called profit and lost statement, gives the bank a summary of the companies’ revenues, expense, and net profit. The purpose of the income statement is to show if the borrowers gain or lose money during a period of operation. Comments: Need more details or no? We can provide more detail about the income statement if needed The cash flow statement is particular important for the Bank because it provides information about the flow of cash in and out of business operation and inherently the ability of the company to make payments. It gives the Bank an idea if the borrowers would be able to repay the loan. More detail?

2. Explains what GAAP is and why as part of a loan agreement with a borrower the Bank should insist upon receiving financial statements prepared in accordance with GAAP. Should the Bank insist on the use of IFRS;

Generally Accepted Accounting Principles (GAAP) are sets of rules, procedures, and standards that companies have to follow when they report their financial statements. The Bank should insist upon receiving financial statements...
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