Question

1) Companies prepare four primary financial statements. What are those financial statements, and what information is typically conveyed by each?

2) What are the two essential characteristics of an assets?

Answer 1

(1)

Four primary financial statements are explained below:

(a) Income Statement:- It is a financial statement which shows the net income/ loss of a company in a particular period. It shows the revenue generated by a company and the expenses incurred to generate those revenue in a year.

(b) Balance sheet:- It is a financial statement which shows the financial position of a company at a particular period. It includes the company's assets, liabilities and equity. It is the sum total of total assets equal to the total liabilities and shareholders equity of a company.

(c) Statement of Cash flow (CFS):- CFS is a financial statement which shows the cash outflow and inflow of a company during a period. It generally shows how much cash is going out of the company and how much cash is generated by the company. It only record the cash transactions of the company.

(d) Statement of Shareholders equity:- It is a financial statement which shows the change in the equity position of a company in a particular period. It record the change in the equity capital (EC), retained earnings (RE), dividend paid etc. in a period.

(2)

Two essential characteristics of an assets is as follows:-

(a) Assets is the property of an entity/individual, hence it gives the right to the assetsholder to control the use of his personal property/asset and obtain benefit.

(b) It is assumed that asset gives some economic benefit to its holder in a future period of time in the form of cash inflows.