Financial Statement

Question 1

What does Financial statement do?

Answer 1

It records the transaction of the business and at the end of a business’s financial year, it has to produce two main documents.

Question 2

What are the two main documents?

Answer 2

A profit and loss account (or income statement)

A balance sheet (or statement of financial position)

Question 3

What is Income statement (profit and loss account)?

Answer 3

It is a summary of the business transactions over the financial period, which is usually a one-year period.

Question 4

What will the profit and loss do?

Answer 4

It will record the business’s total income and expenditure and, by deducting the total expenditure from the total income, will identify if the business has made a profit or loss.

Question 5

Why is the profit and loss account produced?

Answer 5

To show the owners or shareholders how the business is performing.