Today we will learn “30 Short Questions and Answers-Financial Statement.” Financial statements have an important place in the accounting information system.
Every business organization prepares a financial statement to determine the financial position at the end of the specified period.
If you read this article from top to bottom with a proper concentration, you’ll get a basic idea of the financial statement.
It will also increase your accounting knowledge and help you to perform well in any competitive examination.
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Short Questions and Answers-Financial Statement
Question-01: What are the financial statements?
Answer: Statements that summarize the financial condition and performance of the business are called financial statements.
Question-02: How many types of financial statements are prepared as per IAS?
Answer: Five (5) Types of financial statements are prepared as per IAS.
Question-03: What are the five types of financial statements?
Answer: The five (5) types of financial statements are as follows:
- Income statement of comprehensive Income Statement.
- Owners’ Equity Statement.
- Financial Position Statement or Balance sheet.
- Cash Flow Statement.
- Notes, including a summary of the significant accounting policies and other explanatory information provided in the financial statement.
Question-04: What are the features of the financial statement?
Answer: The main features of the financial statements are as follows:
- This is the final report of the accounts.
- It is prepared at the end of a certain accounting period.
- Each financial statement publishes its own results.
- It is prepared following GAAP.
- Provides the necessary comments and explanations.
Question-05: What is the objective or the need to prepare a financial statement?
Answer: The objective or necessity of the preparation of the financial statement is as follows:
- Preparation of the budget and business planning.
- Determination of the repayment power of the organization’s current and long-term liabilities.
- Decision making by the creditors of the loan.
- Decision concerning the declaration of dividends.
- Aid for the determination of taxes.
Question-06: What are the limitations of the financial statement?
Answer: The limitations of the financial statement are as follows:
- Unable to reveal a true and fair financial position.
- Maintaining accounts on the basis of historical costs.
- Absence of quality information.
- Lack of information for the future.
- Failure to provide information promptly.
Question-07: Who are the internal users of the financial statements?
Answer: The internal users of the financial statements are as follows:
- Management Authority
- Internal Auditors
Question-08: Who are the external users of the Financial Statements?
Answer: The external users of the Financial Statements are as follows:
- Tax Authority
- External Auditor
- Chamber of commerce & Industry
- Trade Union
- Research Workers
- Consulting Firm
Question-09: What is the Income or comprehensive Income Statement?
Answer: The statement in which revenue income and expenditures are recorded is referred to as the income statement or the comprehensive Income statement.
Question-10: What are the objectives of the Income Statement?
Answer: The objectives of the preparation of the income statement are as follows:
- Determine the net profit or loss of the enterprise.
- Verify the effectiveness of the functions.
- Provide information on decision-making.
- Provide information on the analysis of the financial situation.
Question-11: How many types of income statements are there and what are they?
Answer: There are two types of income statements. They are as follows:
- One-step Income Statement
- Multi-step or comprehensive income statement.
Question-12: What is a one-step Income statement?
Answer: An income statement in which the net profit or loss is determined by subtracting the sum of expenses from the sum of all incomes in one step is called a one-step income statement.
Question-13: What is a multi-step income statement?
Answer: An income statement that calculates net profit or loss step by step is called a multi-step income statement.
Question-14: How to calculate gross profit in the comprehensive Income Statement?
Answer: Gross profit= Net Sales-Cost of goods sold
Question-15: How to calculate Operating profit in the comprehensive Income statement?
Answer: Operating Profit= Gross Profit-Operating Expenses
Question-16: How to calculate Net profit in the comprehensive Income statement?
Answer: Net Profit= Operating Profit + Others income-Others Expenses
Question-17: How to calculate Net Income in the comprehensive Income statement for service-providing business?
Answer: Net Income=Total Incomes – Total Expenditures
Question-18: What is the Operating Income?
Answer: The income that is normally earned by running a business is called operating income. E.g., Sales Revenue, Service Revenue.
Question-19: What is the non-operating Income?
Answer: Income earned from outside sources of business is called non-operating income. E.g., Interest Income, Dividend.
Question-20: What is the operating expense?
Answer: The expenses incurred in running a business are called operating expenses. E.g., administrative expenses, sales-related expenses.
Question-21: What is the non-operating expense?
Answer: The expenses incurred outside the operation and administration of the business are called non-operating expenses. E.g., interest expense, loss of sale of scrap assets.
Question-22: What value of the closing stock is included in the income statement?
Answer: Whichever is lower between the purchase price and the market price.
Question-23: According to which principle of accounting is the closing stock valued?
Answer: the closing stock is valued according to Conservation Principle
Question-24: What is the Owners’ equity Statement?
Answer: The statement which is prepared to determine the closing balance of the owner’s equity at the end of the accounting period is called the owners’ equity statement.
Question-25: What is the Financial Position statement or balance sheet?
Answer: The statement which is prepared with all assets and liabilities and capital to know the financial position of a business at the end of the year is called the financial position statement or Balance Sheet.
Question-26: How many methods are there for presenting assets and liabilities in financial statements and what are they?
Answer: There are three (3) methods for presenting assets and liabilities in financial statements. They are as follows:
- Liquidity Preference Method
- Rigidity Preference Method
- Financial Position Method
Question-27: What items are included in the balance sheet?
Answer: Assets, Liabilities, and Owners Equity.
Question-28: What is the Cash Flow statement?
Answer: A statement that shows the inflow, outflow, and current status of a cash fund is called a cash flow statement.
Question-29: What are the notes in the financial statements?
Answer: Issues that can’t be included in the financial statements are presented in the form of notes in the financial statements.
Question-30: Financial statement notes are prepared according to which principle of accounting?
Answer: Financial statement notes are prepared according to the full-disclosure principle.
I hope you have a basic idea about the financial statement at the end of the article. Read these “30 Short Questions and Answers – Financial Statement” on a regular basis and enhance your accounting skills.
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