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1. What is a financial statement?

The term financial statements implies that statements which are prepared or produced at the end of financial period (for example at the end of an year) for the purpose of communicating the financial information of a business’s activities to its stakeholders

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2. What are the different financial statements out there?

- Income statement or profit and loss account
- Balance sheet or statement of financial position
- Cash flow statement or statement of cash flow
- Statement of changes in equity
- Accounting policies and explanatory notes

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3. What is the main objective of financial statements?

Financial statements are the reports that show financial position, profitability and cash flows of an entity. Therefore, their main objective is to provide information about financial position, profitable and cash movements of an enterprise to the range of users

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4. What are the uses or applications of financial statements?

- Owner of business needs to know the financial position of business whether business is in profit or in loss

- Investors because they want to invest in the business (e.g. they purchase shares, bonds etc.)

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5. List down any three users of financial statements

- Board of directors
- Management of the business
- Owner(s) of the business

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6. List down any 3 external users of financial statement?

External users have an indirect relation with the organization

- Government agencies
- Investors or shareholders
- Creditors or account payable

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7. List down any 3 internal users of financial statements?

Internal users are those stakeholders that have a direct relationship with the organization

- Board of directors
- Management of the business
- Owner of the business

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8. Is balance sheet the part of accounting’s double entry system?

No, Balance sheet is not the part of accounting double entry system rather than it is a report or statement that shows the detail of total assets, liabilities and capital of an entity at a particular date.

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9. When should the item of property, plant and equipment be eliminated from the balance sheet?

The items of property, plant and equipment are fixed assets and therefore they need to be presented in balance sheet so long as they are not disposed or future economic benefits are no longer expected from them.

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10. In which financial statement the gain or loss on sale of fixed assets is recorded?

The gains or losses arising from the sale or disposal of fixed assets is reported in the income statement

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11. Can an entity classify a liability or debt as a long term liability regardless of its maturity time?

An entity can classify a liability as a long term liability in the following situations

If the business has intention to reschedule the payments so that the liability will be payable after a year

The original maturity period of the liability was more than a year and business had falsely assumed the liability as a current liability

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12. What accounts are needed to be closed off after the preparation of financial statement?

Nominal accounts (account of revenues and expenses) are closed off after the preparing of income statement

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13. Why there is uniformity and resemblance of format in the financial statements of different companies?

If two or more companies follow the same set of accounting rules, procedures and conventions (GAAPs) to prepare financial statement, then obvious there would be resemblance and uniformity of financial statements’ format

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14. What are the common size financial statements?

The financial statements that express their items in percentages of some bases rather than presenting items in absolute figures. For example operating expenses can be shown in income statement as 25% of total sales

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15. In which financial statement dividends are reported?

- Statement of changes in equity

- cash flow statement under financing activities

Dividends are not reported in balance sheet. However, balance sheet adjust the amount of dividends between its cash and equity sections

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16. What are audited financial statements?

An audited financial statement is the one that has been verified and certified by an auditor or chartered accountant that the financial statement is prepared in conformity with the international accounting standards or GAAPs

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17. What is a proforma financial statement?

The financial statements based on some assumed transactions or economic event which are likely to be occurred in the future.

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18. What is a Consolidated Financial Statement?

Consolidated financial statement is defined as a combine financial statement of a parent company and its Subsidiaries (daughter companies)

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