Role, Objectives And Limitations Of Financial Accounting

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FINANCIAL ACCOUNTING
Q1. Critically discuss the role, objectives and limitations of published annual financial statements for companies, and discuss the reasons for, and sources of regulation of the content and format of those financial statements

Abstract
This paper explains the financial accounting process in different business entities. The accounting process requires organizations to provide detailed and accountable statements regarding their firms’ activities. The statements range from income statements, balance sheets and the cash flows statements. The different statements have various roles, goals and limitations pertaining to each one of them. The paper also tends to explain the need and origin of the regulations of the contents
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The statement constitutes of assets and liabilities. For an item to be considered as an asset, it should hold a high probability of benefiting the business in the future. The item is also required to have a monetary value attached to it such that its worth is able to be measured in terms of money. The assets are categorized into two types. One is the fixed assets which are held by the business for more than one year. The second category is the current assets which are in business for less than one year (Armstrong, Guay, and Weber,…show more content…
The accounting equation states that assets should be equal to claims, resulting from the addition of equity and liabilities (Holland, 1998).The trial balance is a list of account balances resulting from the double entry of the transactions in the affected accounts and balancing them off. The trial balance checks and affirms that all transaction entries have been correctly recorded and that the balances are not bias.
The Statement of Financial Performance
It checks on the performance of the business in regards to revenue generation within the accounting period (White, Sondhi & Fried, 2003). The analysis is facilitated by the provision of revenue and expense records. The business performance is evaluated by measuring the profit or loss incurred by the business. Profit is calculated by subtracting the total expenses from the total revenue made by the business. Revenue is the amount of finance generated by the business from its’ normal activities.
On the other hand, expenses are costs that the business incurs in its’ operations of gaining revenue. The income statement is connected to the balance sheet in that the net profit calculated at the end of the statement is used in the preparation of the statement of financial

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