What is the primary purpose of financial statements?

The primary purpose of financial statements is to provide a structured representation of the financial position and performance of a business. These statements, which typically include the income statement, balance sheet, and cash flow statement, offer a comprehensive view of a company's financial health at a specific point in time and over a specified period.

Financial statements are essential for various stakeholders, including investors, creditors, and management, as they help assess the company's profitability, liquidity, and solvency. By providing standardized information, these documents enable users to make informed decisions regarding investments, loans, or business strategies.

While summarizing daily transactions is important for the internal management of operations, it does not reflect the overarching financial status of the organization, which is the primary focus of financial statements. Serving as a tax record and showing compliance with regulatory requirements are also important functions but remain secondary to the overall goal of presenting an accurate and structured depiction of a company's financial performance and position.