The balance sheet is also used by organizations to determine the risk levels. It is generally presumed that if the debt value is high, it induces greater risks within the firm. However, highly geared organizations also gain leverage advantages which may result in higher profitability depending on the structure of the organization. In general, most investors use the balance sheet to gain information relating to solvency, productivity, and asset conversion into capital. Broadly, the balance sheet provides information in relation to the financial statements of a business at a given point in time. It is essential for organizations to develop financial statements in a manner such that they can easily be understood and interpreted by stakeholders. Additionally, it is essential that the financial statements are prepared following all the instructions established by the regulatory authorities. Disclosure of vital information, truthfulness and fair means of presentation of information are vital aspects which managers must bear in mind while preparing financial statements. Hence, accountants involved in the process of preparing financial statements must possess the sound knowledge of the principles of accounting. Purpose of Financial Statements.
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