ch-16

Question 1

Define financial statements?

Answer 1

Financial statements are the statements which show the financial performance and financial position of the business

Question 2

Define trading account

Answer 2

Trading account shows gross profit earned or gross loss incurred

Question 3

Define balancesheet

Answer 3

Balance sheet shows the financial position of the business

Question 4

Define Contingent liability

Answer 4

It is a liability that becomes payable on the happening of an event and not otherwise

Question 5

Define grouping

Answer 5

It means placing items of 1 nature under a common head

Question 6

Define marshalling

Answer 6

Marshalling is arranging the assets and liabilities in a particular order

Question 7

State the objectives/Need/Importance of financial statements

Answer 7

(a) Trading and profit and loss account(Income statement)
1. Determine gross profit/gross loss
2. Determine net profit/net loss
3. Comparison with the previous years profits
4. Details of expenses and income
5. Reserves
6. Ratios
(b) Balance sheet(position statement)
1. Ascertaining financial position
2. Comparison with previous year
3. Determining solvency position

Question 8

Who are the users of financial statements

Answer 8

INTERNAL USERS
1.Owners
2.Management
3.Employees and Trade unions
EXTERNAL USERS
1.Banks and financial institutions
2.Creditors
3.Government and its authorities
4.Researchers
5.Public