Financial Statements

Question 1

Income Statement purpose

Answer 1

Purpose
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 2

Components of Income Statement

Answer 2

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

Question 3

Limitations of Income Statement

Answer 3

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 e.g. depreciation, doubtful debts which maybe incorrect and so final profit is inaccurate.

Question 4

Statement of Financial Position or Balance Sheet purpose

Answer 4

Achieved
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 5

Components of Statement of Financial Position or Balance sheet

Answer 5

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

Question 6

Limitations of Statement of Position or Balance Sheet

Answer 6

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.