Financial Statements Purposes Flashcards
(12 cards)
Income Statement Purpose
Achieved
The purpose is to inform users of the accounting policies and assumptions that have been applied to prepare the other three financial statements for the (insert name of the Business here).
They also provide other relevant information that is not included in the financial statements that assist their decision-making. E.g. market valuations of assets.
Merit
This allows (insert the user name here) to make decisions about (make up a decision relating to the policies and assumptions related to the question).
Income Statement Purpose
Achieved
The purpose is to inform users of the accounting policies and assumptions that have been applied to prepare the other three financial statements for the (insert name of the Business here).
They also provide other relevant information that is not included in the financial statements that assist their decision-making. E.g. market valuations of assets.
Merit
This allows (insert the user name here) to make decisions about (make up a decision relating to the policies and assumptions related to the question).
Components of Income Statements
Identity of the entity by name and nature
Generally accepted accounting practice. E.g Assumption of Going Concern, Accrual Basis
Measurement Basis – Historical Cost
Policies on measurement of Non Current Assets, Depreciation, Accounts Receivable and Inventory
Statement of changes (no changes) in accounting policy
Limitations of Income Statements
Terminology may be confusing and not understood by all users and may confuse them. E.g. Historical Cost
Some expenses are based on estimates eg depreciation, doubtful debts which maybe incorrect and so final profit is inaccurate.
Balance Sheet / Statement of Financial Position Purpose
Achieved
To measure Assets, Liabilities and Equity at one point in time for the (insert name of the Business here).
Merit
This allows (insert the user name here) to make decisions about (make up a decision relating to Assets, Liabilities or Equity related to the question).
Components of Balance Sheet
Current Assets Non Current Assets Plant Property Equipment Investments Intangible Current Liabilities Non Current Liabilities Owners Equity
Limitations of Balance Sheet
Assets value are recorded at Historical Cost so market valuation may have changed and the asset maybe either under or over stated.
Accumulated Depreciation and Allowance for Doubtful Debts are based on estimates
Does not show non-financial information. E.g. the quality and age of assets, the ability of staff.
Components of Income Statements
Identity of the entity by name and nature
Generally accepted accounting practice. E.g Assumption of Going Concern, Accrual Basis
Measurement Basis – Historical Cost
Policies on measurement of Non Current Assets, Depreciation, Accounts Receivable and Inventory
Statement of changes (no changes) in accounting policy
Limitations of Income Statements
Terminology may be confusing and not understood by all users and may confuse them. E.g. Historical Cost
Some expenses are based on estimates eg depreciation, doubtful debts which maybe incorrect and so final profit is inaccurate.
Balance Sheet / Statement of Financial Position Purpose
Achieved
To measure Assets, Liabilities and Equity at one point in time for the (insert name of the Business here).
Merit
This allows (insert the user name here) to make decisions about (make up a decision relating to Assets, Liabilities or Equity related to the question).
Components of Balance Sheet
Current Assets Non Current Assets Plant Property Equipment Investments Intangible Current Liabilities Non Current Liabilities Owners Equity
Limitations of Balance Sheet
Assets value are recorded at Historical Cost so market valuation may have changed and the asset maybe either under or over stated.
Accumulated Depreciation and Allowance for Doubtful Debts are based on estimates
Does not show non-financial information. E.g. the quality and age of assets, the ability of staff.
