Why do we maintain business accounts?

Now before you give me some BS, let me tell you.

We maintain accounts SIMPLY BECAUSE it is necessary by Law. We do not maintain to know where we are going, where we should go….blah blah. Please keep that for a professor’s classroom.

So why do doctors maintain accounts? Again simply because the government has made it compulsory to do so.

Now what do we find in the accounts? With such large amount of numbers, all over the place, with notes,…etc. etc…

read on….

The massive amount of numbers in a company’s financial statements can be scary, bewildering and intimidating to many investors. On the other hand, if you know how to analyze them, the financial statements are a very useful and a gold mine of information.

Look at your own investments. If the investments are in a business which you do not understand, you do not like the numbers. However if it is a business that you can understand, you read it with great interest. Like if you do not understand cricket the score card can look like a jumble of names and numbers. However, person who understands cricket can keep analyzing the numbers for a long period of time.

Exactly like that you need to develop some interest in the business that you wish to understand and then you will start understanding the accounts.

Financial statements are the medium by which a company discloses information concerning its financial performance. Followers of  fundamental analysis use the information got from financial statements to make investment decisions. Before we jump into the specifics of the three most important financial statements –

Profit and Loss account (also called income statements)

Balance Sheets and

Cash flow statements – we will briefly introduce each financial statement’s specific function, along with where they can be found.

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  1. Sir,

    Pls provide some insights into these 3 statements, other than usual explanations.I have been waiting for a long time…

  2. One book that I found particularly helpful for understanding of financial statements – How to Choose Winning Stocks: Rewriting Formula, by GBRK Prasad. Here he goes into fair amount of details on how to do a good analysis before judging the worth of a company or its stock.

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