Purposes of Accounting and Financial statements

Question 1

What is the purpose of accounting

Answer 1

to provide users useful financial and non-financial information to allow them to make decisions

Question 2

what is the achieved answer porpuse 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 porpuse of an income statement

Answer 3

To show the Revenue, Expenses and Net Profit for the period for the (insert name of the Business here).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 
Distribution
Administrative 
Finance Costs
Net Profit

Question 5

what are 2 limitations on income statements

what does it not show

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

Question 6

what decisions can users make looking at an income statement

Answer 6

taxes to pay, ability to pay loan, buying more assets, owner draw funds for personal use, is profit better than the competition, ability to give pay raises