Purposes of accounting and finacial statements

Question 1

What is the purpose of accounting

Answer 1

to provide users useful information to allow them to make desisions

Question 2

What is the achieved purpose of an 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 of an income statement

Answer 3

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

Question 6

What decisions can uses make looking at profit for the year

Answer 6

Taxes to pay
Ability to repay loan instalments
Buying more assets 
Owners drawing funds for personal use 
Ability to ask for wage rises 
Better than competertives