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Questions and Answers
What are the three primary financial statements?
Statement of financial position, Income statement, Statement of cash flows
What does the statement of financial position describe?
It describes where the enterprise stands at a specific date.
What does the income statement show?
What is the purpose of the statement of cash flows?
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Creditors are primarily interested in the market value of stock holdings.
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Study Notes
Introduction to Financial Statements
- Investors and creditors are interested in future cash flows.
- Creditors are interested in the ability of an enterprise to meet its payment obligations.
- Investors are interested in the market value of their stock holdings and any dividends they might receive.
Financial Statements
- A financial statement is a declaration of what is believed to be true about an enterprise, communicated in terms of a monetary unit, such as the dollar.
- When accountants prepare financial statements, they are describing in financial terms certain attributes of the enterprise that they believe fairly represent its financial activities.
Three Primary Financial Statements
- Statement of financial position (balance sheet)
- Income statement
- Statement of cash flows
Statement of Financial Position (Balance Sheet)
- Describes where the enterprise stands at a specific date.
- A snapshot of the business in financial or dollar terms that shows what the enterprise looks like at a specific date.
Income Statement
- An activity statement that shows the revenues and expenses for a designated period of time.
- Revenues generate positive cash flows through transactions with customers.
- Expenses generate negative cash flows (outflows of cash) through business activities.
Statement of Cash Flows
- Details the company’s sources and uses of cash during an accounting period.
- Enables the financial statement user to better understand the change in the cash balance shown on the comparative balance sheet.
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Description
This quiz covers the fundamentals of financial statements, including their importance to investors and creditors. Learn about the three primary financial statements: the balance sheet, income statement, and statement of cash flows, and how they represent an enterprise's financial activities.