Purposes of Accounting and Financial Statements

Question 1

What is The Purpose of Accounting?

Answer 1

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

Question 2

What is the Achieved purpose for an income statement?

Answer 2

To show the revenue, expenses and net profit for the period for the business in question.

Question 3

What is the Merit purpose for an income statement?

Answer 3

To allow the user to make decisions about revenue, expenses or profits related to the question.

Question 4

What are the components of an Income Statement?

Answer 4

Administration Expenses, Distribution Costs, Finance Costs. Cost of Goods Sold, Income, Other Income and Net Profit.

Question 5

What are 2 limitations of an income statement?

Answer 5

They don’t show non-financial information. They don’t show any assets.

Question 6

What Decisions can users make looking at the profit for the year?

Answer 6

Taxes to pay, Ability to repay loan installments, Buying more assets, Owner drawing funds out for personal use, Ability to ask for wage rises, To see if they are better than competitiors.