Tag: uses, importance, and limitation of financial statements

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Multiple choice elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

Financial statements are the outcome of recorded facts, accounting concepts and conventions used and personal judgement made in different situations by the _________.

  1. owners

  2. accountants

  3. managers

  4. dierctors
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Financial statements are the outcome of recorded facts, accounting concepts and conventions used and personal judgements made in different situations by the accountants. Hence, bias may be observed in the results, and the financial position depicted in financial statements may not be realistic.

Multiple choice elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

As financial statements do not show aggregate information, it may not help the ________ in decision-making much.

  1. owners

  2. users

  3. customers

  4. both a and b
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A financial statement is a collection of data organised according to logical and consistent accounting procedures. Its purpose is to convey an understanding of some financial aspects of a business firm.

Financial statements show aggregate information but not detailed information. Hence, they may not help the users in decision-making much. 

Multiple choice elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

Since the purchasing power of money is changing, the value of assets and liabilities shown in financial statement does not reflect ________ market situation.

  1. past

  2. future

  3. current

  4. both a and c
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

As Financial statements are prepared on the basis of historical cost.

It creates a demerit of financial statements. Since the purchasing power of money is changing, the values of assets and liabilities shown in financial statement do not reflect current market situation.

Multiple choice elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

Which of the following is not an use and importance of financial statements?

  1. Report on stewardship function

  2. Basic for prospective investors

  3. Bias

  4. Basis for granting of credit
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Financial statements aim to provide a true and fair view of a company's financial position. Bias is a negative trait that undermines the reliability and utility of these statements.

Multiple choice elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

The financial statements enable the ___________ to judge the financial position of different concerns and take decisions about the prices to be quoted.

  1. owners

  2. shareholders

  3. stock brokers

  4. managers
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Financial statements help the stock exchanges to understand the extent of transparency in reporting on financial performance and enables them to call for required information to protect the interest of investors. 

The financial statements enable the Stock brokers to judge the financial position of different concerns and take decisions about the prices to be quoted.

Multiple choice elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

____________ may develop standard ratios and design uniform system of accounts.

  1. Owners association

  2. Trade associations

  3. Company association

  4. Both a and b
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A financial statement is a collection of data organized according to logical and consistent accounting procedures. Its purpose is to convey an understanding of some financial aspects of a business firm.

One of the importance of financial statement is it aids trade associations in helping their members as Trade associations may analyse the financial statements for the purpose of providing service and protection to their members. They may develop standard ratios and design uniform system of accounts.

Multiple choice elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

Trade associations may analyse the financial statements for the purpose of providing service and protection to the _________.

  1. owners

  2. shareholders

  3. managers

  4. members
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

A financial statement is a collection of data organised according to logical and consistent accounting procedures. Its purpose is to convey an understanding of some financial aspects of a business firm.

One of the importance of financial statement is it aids trade associations in helping their members as Trade associations may analyse the financial statements for the purpose of providing service and protection to their members. They may develop standard ratios and design uniform system of accounts.

Multiple choice elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

Financial statements contain only _________ information but not ___________ information.

  1. monetary, quantitative

  2. qualitative, quantitative

  3. monetary, qualitative

  4. qualitative, monetary
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Financial statements are written records of a business's financial situation. They include standard reports like the balance sheet, income or profit and loss statements, and cash flow statement.

Though utmost care is taken in the preparation of the financial statements and provide detailed information to the users. Shareholders of companies are interested in knowing the status, safety and return on their investment. They may also need information to take decision about continuation or discontinuation of their investment in the business.

But financial statements contain only monetary information but not qualitative information like industrial relations, industrial climate, labour relations, quality of work, etc.

Multiple choice elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

___________ of the companies are interested in knowing the status, safety and return on their investment.

  1. Owners

  2. Managers

  3. Shareholders

  4. Directors
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The users of financial statements include management, investors, shareholders, creditors, government, bankers, employees and public at large.

Shareholders of companies are interested in knowing the status, safety and return on their investment. They may also need information to take decision about continuation or discontinuation of their investment in the business. Financial statements provide information to the shareholders in taking such important decisions.

Multiple choice elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

The investors include both ________ and _________ investors under basis for prospective investors.

  1. long-term, short-term

  2. short-term, medium-term

  3. medium-term, long-term

  4. none of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The investors include both short-term and long-term investors. Their prime considerations in their investment decisions are security and liquidity of their investment with reasonable profitability. Financial statements help the investors to assess long-term and short-term solvency as well as the profitability of the concern.