The Purpose Of Finalcial Statements

Question 1

What is the purpose of financial statements?

Answer 1

The purpose of financial statements is to provide information about an organisation’s:
- Financial position (assets and liabilities)
- Financial performance (profit or loss)
- Changes in financial position (cash flows)

Question 2

Why do users need financial information?

Answer 2

Users need this information:
(a) To make economic decisions (eg to assist in deciding whether to invest in the company)
(b) To assess the stewardship of the organisation’s management (how well the directors have used the company’s resources to generate profit)

Question 3

What are the main types of profit-making organisations?

Answer 3

The main kinds of profit-making organisations are:
- Sole traders: A business owned and managed by one person.
- Partnerships: A business owned and managed by two or more people.
- Company: A business that is a separate legal entity from its owners.

Question 4

What is the focus of this course in terms of financial statements preparation?

Answer 4

In this course, the focus is on preparing and interpreting the financial statements of limited companies.