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    Account 2

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    crvnjby8cw

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    Account 2

    Uploaded by

    crvnjby8cw
    2 views7 pages

    Original Title

    ACCOUNT 2

    Copyright

    © © All Rights Reserved

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    Copyright:

    © All Rights Reserved
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    Download as docx, pdf, or txt
    2 views7 pages

    Account 2

    Uploaded by

    crvnjby8cw

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 7

    QUESTION 1) what do you mean by

    financial statements or final account ?

    Financial statements, often referred to


    as final accounts, are a formal record of
    the financial activities and position of a
    business, individual, or entity. They
    provide a summary of income,
    expenditures, assets, liabilities, and
    equity over a specific period. Think of
    financial statements as a report card
    for a business, showing how well it's
    performing, what it owns, and what it
    owes.

    The most common financial statements


    include:
    The Balance Sheet: This document
    shows what a company owns (assets)
    and owes (liabilities) at a specific point
    in time. It also highlights the equity, or
    ownership stake, that shareholders
    have in the business.
    The Income Statement (Profit & Loss
    Statement): This details a company's
    revenues and expenses over a specific
    period, showing whether it made a
    profit or incurred a loss.
    The Cash Flow Statement: This reports
    the flow of cash into and out of the
    business, indicating how well a
    company generates cash to pay its
    obligations and fund operations.
    The Statement of Changes in Equity:
    This shows how the company's equity
    has changed over the reporting period,
    primarily due to profits, losses,
    dividends, and any capital injections or
    withdrawals.

    The Objectives Behind Preparing


    Financial Statements

    1. Assessment of Financial Position:


    Financial statements give stakeholders
    an insight into the financial position of
    a business. The balance sheet, for
    instance, reflects the health of the
    business by comparing assets and
    liabilities, helping stakeholders assess
    the liquidity and stability of the
    organization.
    2. Performance Evaluation: The income
    statement helps in evaluating the
    profitability of a business. Investors,
    managers, and other stakeholders can
    see whether the business is making a
    profit or suffering a loss and decide on
    the next steps accordingly.

    3. Cash Management: The cash flow


    statement is critical for managing cash
    and understanding how much cash is
    being generated or used by the
    company. A business may be profitable
    but could face cash flow problems,
    which may lead to difficulties in
    meeting obligations.
    4. Legal Requirement; Preparing
    financial statements is often a legal
    requirement, especially for publicly
    listed companies. Governments and
    regulators need to ensure businesses
    operate transparently, comply with tax
    laws, and avoid unethical practices.

    5. Investment Decisions: Investors and


    potential investors use financial
    statements to decide whether to invest
    in a company. These documents help
    them determine if the company is a
    worthwhile investment based on its
    financial stability and growth
    prospects.
    6. Taxation: Governments use financial
    statements to calculate and verify the
    correct amount of tax a company owes.
    Financial transparency ensures that the
    business pays its fair share of taxes.

    7. Internal Decision-Making:
    Management relies on financial
    statements to make informed decisions
    about day-to-day operations,
    investments, cost-cutting measures,
    and future strategies. They can identify
    areas that are profitable and those that
    require improvement.
    Now, preparing financial statements is
    a systematic process. Even though
    accountants might look like
    perfectionists, there’s a very human
    element to the way these numbers are
    put together. Sometimes errors creep
    in; mistakes in estimations or
    judgements that require later
    corrections. But the process is
    structured and precise.

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