Drafting Financial Statements

Question 1

When does financial reporting take place for a business?

Answer 1

At financial year-end

Question 2

What does the statement of profit or loss and other comprehensive income summarise?

Answer 2

A business’s performance over the year

Question 3

What does the statement financial position summarise?

Answer 3

A business’s net wealth at year-end

Question 4

What are the two purposes of running a year-end?

Answer 4

1. To determine a business’s performance by profits over the past financial year.
2. To determine the financial position of a business as at the last day of the financial year.

Question 5

What does ‘gross’ mean?

Answer 5

Before deductions

Question 6

What does ‘net’ mean?

Answer 6

After deductions

Question 7

When running a year-end, what accounts are the nominal accounts closed off against to bring income and expense accounts balances to nil?

Answer 7

Trading and profit and loss accounts

Question 8

What temporary final account is used to calculate gross?

Answer 8

Trading account

Question 9

What temporary final account is used to calculate net?

Answer 9

Profit and loss account

Question 10

What is the statement form of the accounting equation?

Answer 10

Statement of financial position

Question 11

What is the statement form of the trading and profit and loss accounts?

Answer 11

Statement of profit or loss and other comprehensive income

Question 12

What is the statement form of the post-closing trial balance?

Answer 12

Statement of financial position

Question 13

Why is it necessary to produce financial statements?

Answer 13

Many stakeholders have limited accounting knowledge and require financial information to be in a form that tells a story

Question 14

What are the 2 stages of profit calculations?

Answer 14

1. Gross calculation
2. Net calculation