Understanding Financial Statements

What are the three main types of financial statements discussed?

• Balance sheet, Income statement, Cash flow statement

• Profit statement, Loss statement, Equity statement

• Asset report, Liability report, Owner's equity report

• Financial condition, Profit analysis, Cash management

What is the purpose of financial statements?

• To provide a summary of financial performance and health

• To list employee names and salaries

• To detail every transaction

• To advertise to potential investors

What does a balance sheet show about a business?

• Daily transactions and cash flow

• Assets, liabilities, and equity at a specific time

• Annual profit and loss only

• Investment details and stock values

What are retained earnings as mentioned in the balance sheet?

• Initial investments made by the owners

• Total liabilities owed to creditors

• Cumulative profits held by the business

• Yearly revenue before expenses

How are assets and liabilities represented on the balance sheet?

• Liabilities on the left, assets on the right

• Assets and liabilities mixed together

• Equity at the top, assets and liabilities at the bottom

• Assets on the left, liabilities and equity on the right

What is the fundamental accounting equation?

• Assets = Liabilities + Equity

• Assets = Liabilities - Equity

• Assets + Equity = Liabilities

• Assets + Liabilities = Equity

What is the significance of the statement that 'the balance sheet always has to balance'?

• It ensures the company is profitable

• It simplifies tax calculations

• It reflects the accounting equation where assets equal liabilities plus equity

• It is a legal requirement

What does the income statement primarily show?

• Current stock prices

• Total assets at year-end

• Net profit or loss over a period

• Details of company loans

What does net profit on the income statement indicate?

• Profitability after subtracting expenses from revenue

• Value of assets sold

• Total revenue before expenses

• Cash available for dividends

Why is a cash flow statement necessary in accrual accounting?

• To track cash inflows and outflows separately from revenue and expenses

• To calculate total sales only

• To report only on the investments made

• To show the balance sheet details