Purposes of Accounting and Financial Statements

Question 1

The Purpose of Accounting

Answer 1

To provide the users financial and non financial information to allow them to make decisions.

Question 2

The Purpose of Financial Statements: Achieved

Answer 2

To show the Revenue, Expenses and Net Profit for the period for the (insert name of the Business here).

Question 3

The Purpose of Financial Statements: Merit

Answer 3

This allows (insert the user name here) to make decisions about (make up a decision relating to Revenue, Expenses or Profit related to the question)

Question 4

What are the components of an income statement

Answer 4

Income – Sales or Fees
Other Income
Cost of Goods Sold
Expenses 
Distribution
Administrative
Finance Costs
Net Profit

Question 5

What are two limitations of an income statement

Answer 5

Does not include non-financial information. E.g. quality of goods or services provided, quality of staff, foot traffic.

Some expenses are based on estimates eg depreciation, doubtful debts which maybe incorrect and so final profit is inaccurate.

Question 6

What is the Purpose of a statement of financial position

Answer 6

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).

Question 7

What are the components of a statement of financial position

Answer 7

Current Assets
Non Current Assets
Plant Property Equipment
Investments
Intangible 
Current Liabilities
Non Current Liabilities
Owners Equity

Question 8

What are the limitations of a statement of financial position

Answer 8

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.