Questions and Answers
What are financial statements?
Formal records of financial activities over a period of time
Which of the following is NOT a type of financial statement?
Inventory statement
How do financial statements help businesses?
By summarizing financial activities over a period of time
What do financial statements provide evidence for?
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Why are financial statements considered crucial for decision-making?
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Study Notes
Accounting is a discipline that involves recording transactions, measuring and summarizing information, analyzing accounts, and interpreting trends. Financial statements are one of its most important components—they are formal records of the financial activities of a business over a period of time, such as profit and loss statement, balance sheet, cash flow statement, and statements of retained earnings. These documents help keep track of monetary inflow and outflow, assets owned by a company, liabilities owed, revenues earned, expenses paid, and profits gained. They also serve as evidence when it comes to tax calculations. In summary, accounting practices involve keeping records of all financial activity within an organization so they can make informed decisions based on the past performance of their company.
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