Short Questions and Answers-Financial Statement

“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.

Today we will learn “30 Short Questions and Answers-Financial Statement.” If you read it 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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So let’s start

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.

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:

  • Owners
  • 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:

  • Creditors
  • Investors
  • Government
  • 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: 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 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 the notes in the financial statements.

Question-30: Financial statement notes are prepared according to which principle of accounting?

Answer: 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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You can also read:

Short questions and Answers:

  1. Introduction to Accounting
  2. Transaction
  3. Account
  4. Double Entry System
  5. Accounting Cycle
  6. Journal
  7. Ledger
  8. Cash Book
  9. Bank Reconciliation Statement
  10. Trial Balance
  11. Receivables
  12. Accounting Principles
  13. Plant Assets and Depreciation

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