Financial statements are prepared according to agreed-upon guidelines. In order to understand these guidelines, it helps to understand the objectives of financial reporting. The objectives of financial reporting are to provide information that:
1. Is useful to existing and potential investors and creditors and other users in making rational investment, credit, and similar decisions;
2. Helps existing and potential investors and creditors and other users to assess the amounts, timing, and uncertainty of prospective net cash inflows to the enterprise;
3. Identifies the economic resources of an enterprise, the claims to those resources, and the effects that transactions, events, and circumstances have on those resources.