Simple Financial Statement Flashcards
What is the purpose of the Income Statement and Balance Sheet?
To assess a business’s performance, financial position, and liquidity.
How is the performance of a business determined?
By calculating profitability (income - expenses) in the Income Statement.
How does the Balance Sheet show the financial position of a business?
It shows what the business owns (assets) and owes (liabilities), indicating capital strength.
What does the Balance Sheet reveal on its listed date?
The business’s liquidity, funding, and debt positions
What indicates liquidity in the Balance Sheet?
When current assets exceed current liabilities, showing the ability to pay short-term debts.
What additional information does the Income Statement provide?
It shows sales volume, expense types, and, over time, trends in business operations.
Why are closing entries recorded at the end of an accounting period?
To close income and expense accounts and calculate profit or loss for the period.
What is the purpose of the Profit and Loss Account?
To consolidate all income and expense totals to determine profit or loss.
What does an income statement report?
Income, expenses, and the resultant profit or loss for a period.
How are income and expenses transferred in closing entries?
hey’re transferred to the Profit and Loss Account.
How is profit or loss transferred to the Capital Account?
Through a general journal entry, as it affects the owner’s investment.
What indicates a profit or a loss in the Profit and Loss Account?
Profit if the credit side is greater; loss if the debit side is greater.
What are the three main categories of a classified income statement for a trading business?
Selling and Distribution Expenses, General and Administrative Expenses, and Financial Expenses.
What is a classified income statement?
It shows subtotals of income and expenses in categories for clarity.
: What are examples of Selling and Distribution Expenses?
Advertising, sales staff wages, delivery costs, and bad debts.
