Purpose Of Accounting

Question 0

How do we assess whether a business is profitable?

Answer 0

Produce an income statement.

Question 1

Why do we keep accounting records?

Answer 1

To see whether the business has made a profit.

Question 2

How does a business know if it’s solvent or not?

Answer 2

By producing a statement of financial position.

Question 3

How are stakeholders informed about the progress of the business?

Answer 3

By looking at the businesses income statements and statements of financial position.

Question 4

What can the owner produce in order to anticipate the future of the business?

Answer 4

Cash budget
Projected income statement
Projected statement of financial position

Question 5

How do owners know when to take corrective action?

Answer 5

By comparing accounting records with what was forecast.

Question 6

Businesses have to maintain accurate accounting records. Why?

Answer 6

So that HM Revenue and Customs can collect the correct taxes.