Question

Question 1

Financial statements are prepared for a range of different business entities.

a) Identify the different entities financial statements can be prepared for.

b) Identify the different financial statements and explain the type of information contained within each of the financial statements.

c) Explain the purpose of accounting information and how this purpose is linked to the needs of stakeholders involved with different entities.

Answer 1

Answer

Financial Statements are the statements, details , records showing the details about the Entity’s Income’s and Expenses during a particular period of which we are preparing Financial Statements,

Financial Statements Shows the Financial Position of the entity on a particular day and It shows the Cash flows of a particular period.

1.

Financial statements can be prepared by any business entity whether it is Sole proprietorship, Partnership, NGO, Company, LLP…etc

According to the Law, Only few entities like Company is required to submit Financial Statements with the Government but other entities also prepare to know the profit and Financial position, cash flow of their business organization.

2.

Statement of Profit and Loss, This Shows the Entity Income and Expenses of a particular period of which we are preparing the Financial Statements.

Balance Sheet, It shows the Values of Assets, Liabilities, Equity sections of the Entity.

It shows the Financial Position of the company on a particular day of which we are preparing the Financial Statements.

Statement of Changes in Equity, It shows the changes in Equity section of the Entity.

Notes to accounts, It is also the part of Financial Statements, it shows the detailed part of the Assets, Liability and equity section.

Cash Flow Statement, It shows the cash flow from Different Activities of Entity like Operating, Investing and Financing section of the Entity during a particular period of which it is prepared.

3.

Accounting information is required by many people for different reasons,

Government requires it to levy and collect tax.

Management requires it to see the growth and area which needs attention.

Researchers require it to research the company financial position.

Creditors requires it to find out whether the company can its dues or not and on time or not by calculating different ratios.

Investors requires it to find out whether the company will pay return on their investment or not by calculating different ratios.

Owner needs to find that he earned the required income or not.

In different entities there are different parties and all parties have different need, so I explained many of them.

Like in Sole proprietorship there is only owner and no management.

In Partnership there are many owners.

In company there are creditors, investors, Management, owners…etc

Financial Statements are required by everyone with their own need.