What are the two main types of financial statements, and what does each primarily assess?

Two main financial statements exist.

• Income Statement shows profits/losses.

• Balance Sheet assesses financial position.

• Both are vital for analysis.

Fill in the blank: Capital Expenditure is primarily associated with acquiring ___ and increasing the ___ of a business.

Fixed assets; earning capacity

True or False: Revenue expenditure benefits the business over multiple accounting periods.

False; revenue expenditure benefits the business within the same accounting year.

What is the role of the Statement of Financial Position in a business's financial reporting?

Statement of Financial Position shows assets.

• Displays company’s financial health.

• Lists assets and liabilities clearly.

• Shows capital structure details.

Riddle: I reflect your profits and losses but do not show your cash flow. What am I?

The Income Statement

How do stakeholders utilize the Statement of Financial Position?

Stakeholders assess financial health.

• Evaluates company's solvency status.

• Analyzes financial structure and stability.

• Provides insight into financial health.

Fill in the blank: The cash flow statement categorizes activities into ___, ___, and ___.

Operational activities; investing activities; financing activities

What distinguishes capital receipts from revenue receipts in financial statements?

Capital receipts differ from revenue receipts.

• Long-term funding sources.

• Do not impact profits.

• Generated from operations.

In the context of cash flow statements, what does a positive cash flow from operating activities indicate?

Positive cash flow indicates financial health.

• Reflects core business success.

• Supports operational stability.

• Attracts potential investors.

True or False: Goodwill is considered a tangible asset on the balance sheet.

False; goodwill is an intangible asset.

What are deferred revenue expenditures, and how do they differ from regular revenue expenditures?

Deferred revenue expenditures benefit future periods.

• Deferred expenses provide future benefits.

• Regular expenses benefit same year only.

• Important for financial reporting accuracy.

Riddle: I show the cash flowing in and out of a company but do not reflect profits directly. What am I?

The Cash Flow Statement

Identify the following: The financial statement that summarizes revenues and expenses to show net profit or loss over a specified period.

The Income Statement

Fill in the blank: The Balance Sheet reflects the financial position of a business as of a specific ___.

Date

How does the classification of expenditures impact the preparation of the Income Statement and Balance Sheet?

Classification impacts financial statements.

• Affects profit calculations directly.

• Influences asset valuation methods.

• Guides financial reporting practices.