What does the full-disclosure principle state?

The full-disclosure principle that all information should be included in an entity's financial statements that would affect a reader's understanding of those statements.

What does the principle of materiality mean?

The principle of materiality says that very small and unimportant amounts do not need to be shown.

What is the principle of conservatism or prudence?

Under the conservatism principle, if there is uncertainty about incurring a loss, you should tend toward recording the loss. Conversely, if there is uncertainty about recording a gain, you should not record the gain. (you choose the one that is least likely to overstate or over-estimate assets or income.)

Characterize the objectivity principle.

The objectivity principle says that accounts should be based on facts and not on personal opinions or feelings.

What is the revenue recognition principle?

The revenue recognition principle is that revenue is recognized in the accounting period in which it is earned. This means the revenue is recorded when a service is provided or goods delivered, not when they are paid for.

What does the matching principle state?

The matching principle, which is related to revenue recognition, states that each cost or expense related to revenue earned must be recorded in the same accounting period as the revenue it helped to earn.

Why are banks’ financial statements scrutinized by investors?

In order to choose a in which shares should invest money, investors need to read the financial report. Because the financial report allows investors to determine the current financial position of the company and present business prospects for the near future.

Such reports are regularly issued by any bank. A careful review of a bank's financial statements can highlight the key factors that should be considered before making an investment decision. Investors need to have a good understanding of the business cycle and interest rates since both can have a significant impact on the financial performance of banks. That is why investors need to scrutinize the Bank's financial statements in order not to incur losses in the future.

What are the basic reports that the external users require on a regular basis?

There are three basic reports that the business organization uses on a regular basis: income statement, statement of capital and balance sheet.

The first statement is the income statement. The income statement tells an external user how much money a company made or lost in a given time period.

The second statement is the statement of retained earnings. This financial statement tells external users how much of the net income shown on the income statement is reinvested in the company.

The third financial statement that is generated is the balance sheet. The balance sheet tells external users exactly what accounts a company has and the balance in each account.

The last financial statement is the statement of cash flows. The statement of cash flows tells the external user what brought revenue in and where it was expensed out.

What is the main purpose of the income statement?

Income statement this is a financial statement which shows the difference between the revenues and expenses of a period. The main purpose of the income statement is to show the difference between income and expenses for a certain period.

How is profitability measured?

Profitability is the ability of the company to utilize their resources in such a way that they can generate more revenue than what they must pay in expenses.

In accounting, profitability is measured by comparing the revenues generated in a period with the expenses incurred to produce those revenues.