Question

Explain the concept of coordinated financial statements? In what ways are the major financial statements coordinated? (4points)

Answer 1

The concept refers to coordinating the financial statement at the beginning of the period with its results at the end of the period in accordance with the income generated.

The major financial statements, namely income statement, statement of owner equity, balance sheet, and statement of cash flows are interlinked in nature. An entry in the accounting may trigger a simultaneous change in two or three of these financial statements. If an incomplete effect is considered then the financial statement may not tally at the end of the year and the statements may provide a false picture of the financial position of the company. For example: The profit/loss generated during the year is calculated at the end of the year using the profit and loss statement, the same figure is transferred to the balance to and will also reflect in the statement of owner equity.

Another transactions, say, the purchase of a fixed asset, would be an expense which would be capitalized in the balance and the outflow of the cash towards the purchase can be observed in the cashflow statement.