Assertion: Financial statements are the basic sources of information to the shareholders and other external parties for understanding the profitability and financial position of any business concern.
Reasoning: The primary objective of financial statements is to assist the users in their decision-making.

Both Assertion (A) and reasoning (R) are correct and but R is not the correct explanation of A.

The correct answer is Option 1: Both Assertion (A) and Reasoning (R) are correct and R is the correct explanation of A.

Statement: Financial statements are the basic sources of information to the shareholders and other external parties for understanding the profitability and financial position of any business concern. This is true because financial statements (like the income statement and balance sheet) provide summarized financial information to users outside the business.

Reasoning: The primary objective of financial statements is to assist the users in their decision-making. This is also true.

Why R explains A: Financial statements are considered basic sources of information precisely because their main objective is to help users such as shareholders, investors, and creditors make economic decisions. Hence, the reasoning directly supports the assertion.