Purpose of Financial Statements Flashcards
Who reads financial statements?
Competitors, shareholders, managers, employees, the government, customers and suppliers
What is the purpose of financial statements?
They record the financial activities of a business, they provide an immediate overview of the business’ financial position, they show whether or not the business is well managed and successful.
Why do shareholders want to see financial documents?
They want to see if their money is safe and being well managed
Why would you show your financial documents to competitors?
Some businesses, such as PLCs have to produce and publish their financial accounts by law.
Identify 2 types of information shown in financial documents.
1) Gross and net profit
2) Assets and liabilities
If you want an overdraft - what two financial documents should you take to the meeting with the bank?
1) Income Statement
2) Statement of Financial Position
Why would the bank want to see the income statement and statement of financial position when deciding whether or not to give an overdraft?
1) To check that the business has a positive gross and net profit
2) To see the assets and liabilities to see what the business owns and what debts it has
Why might customers want to see financial accounts?
To check it is safe to buy from the business. If the business goes bankrupt any guarantees will be void.
Why might suppliers want to see financial accounts?
To check the business can pay its debts.
Why might a bank manager want to see financial accounts?
To check it can repay a loan
Why might a business produce an income statement?
1) To check its financial activities
2) To check whether a profit or loss has been made
3) It is required by law
Why might the government want to see financial accounts?
To see how much corporation tax is owed.
