Question

Q1 :Do you think the financial statements provides ALL the necessary information to external users to make better decision? Mention any information that should be known by external users and not included in the financial statements?


Q2: From a personal perspective, why do accountants have to divide the life of the entity into periods?

answer both Questions

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Answer 1

Answer:

1. Financial statements are witten record of a business's financial situation. They include standard report like the balance sheet, income or profit and loss staments and cash flow statements . In a technical sense, financial statememts are a summation of the financial position of an entity at a given point of time. Yet financial statements includes these reports but there are some other information that are not included in the financial statements these information are as follows :

• Financial statements do not tell about changes in senior management.
• It does'nt tell about the loss of major customers
• Financial statements do not tell about the competitive environment in which the company operates.
• The market value of the business is not presneted.
• Can business be compared to peers with only financial statements as a refrence tool.
• Non financial factors sorrounding the business.

2. The general concept of the time period principle assumes that all business can divide their finanical activities into artificial time periods. In other words, all revenues and expenses can be systemetically assigned to distinctive and consecutive accounting time periods. The accounting period is useful in investing because potential shareholders analyze a company,s performance through its financial statements that are based on a fixed accouting period.