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Financial Assignment

Will an investor who is interested in the future be interested about what happened in the past? This is the basic question that is answered by this paper. It is an accepted observation that investors are anticipatory about what is happening and what will eventually happen to their investments in companies by looking at the latter’s performance yet the said investors are placing emphasis on importance of the financial information contained the annual financial statements which are reports about past events. This paper mainly argues that knowledge about the past will lead one to appreciate what would happen next.

It is in a sense arguing that the past and present would always be continued in the future. Although the future is a continuation of the past and present, it does not necessarily mean that there will be no changes. When someone goes to the doctor, one is expected to be asked what happened for the purpose of eliciting information on what cause the present situation of the patient. Some books contain a historical back ground of what is being discussed in the text before a deeper understanding of the issues could be appreciated.

Scholars and scientists are into discovering the past in

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order to unlock the keys of the future because of more profound knowledge of principles that could point to the nature of things and their possibilities. By the same argument, one should not be surprised that investors would benefit much in learning about the past or historical financial records of a corporation for the purpose of understanding the future growth and developments of these corporations. Profit and Loss Account measures the financial performance of the firm by the use of the accounting elements of revenues and expenses.

The same is true with the balance sheet which measures the historical financial position using the accounting elements of assets, liabilities and equity. The elements are being worked out to deliver the needed information. Revenues need to be higher than expenses to indicate profit but the revenues require the use of assets or liabilities which must become first expenses as expected before the matching revenues could be generated. If a residue remains from the excess of revenues over the expenses, the same would be closed to equity accounts.

In other words, the equity is expected to be increased over time as investors continue to have their investments managed by administrators or managers in a business entity. One could just imagine therefore that the objective of making investment is wealth maximization. Before such things happen however, decisions will have to be made on whether assets should be used or liabilities should be incurred to generate revenues; hence there is the need to have information of accounting value about the past in order to forecast or predict about the future.

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