Purposes of Accounting and Financial Statements

Question 1

What is The Purpose of Accounting?

Answer 1

The Purpose of Accounting is to provide Users useful financial and non-financial information to allow them to make decisions.

Question 2

What is the Achieved purpose for a income statement?

Answer 2

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

Question 3

What is the Merit answer for purpose of a income statement?

Answer 3

Achieved
To show the Revenue, Expenses and Net Profit for the period 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 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 
o	Distribution
o	Administrative
o	Finance Costs
•	Net Profit

Question 5

What are 2 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 decisions can users make looking at proft for the year?

Answer 6

-Taxes to pay
-Ability to repay loan installments
-Buying more assets
-Owner drawing funds for personal use.
-