1)     Differentiate financial reporting from financial statements.

2)  Enumerate the inclusions in a complete set of general-purpose financial statements.

3)  Explain the following accounting assumptions of [a] separate entity, [b] continuity,
[c] unit of measure, and [d] time period 

4) Would the information presented in financial statements be sufficient to come up with
sound economic decisions? Why or why not?

5) What financial statement best describes the following attributes of an enterprise:
[a] liquidity; [b] solvency; [c] financial structure; [d] capacity for adaptation; and [e] performance?

Question 1 

Financial reports vs. financial statements

The differences are based on the following;

• Scope
  A financial statement, such as a balance sheet or cash flow statement, contains data on a single issue, whereas a financial report contains data on a variety of topics. Simply said, a financial report is a collection of financial statements. An income statement, a statement of change in equity, and a balance sheet, for example, could be included in a quarterly financial report.
• Formatting-To be presented to potential investors and other interested parties, financial documents, such as a balance sheet, must follow precise formatting guidelines. Assets, liabilities, and owner's equity must be divided into separate areas on balance sheets, with total amounts indicated for each. Financial reports, on the other hand, can incorporate the same information in a different style because report design isn't strictly required.
• Length-Because it covers numerous financial statements, a financial report is usually significantly longer than a financial statement. Because financial reports frequently cover the complete extent of a company's financial health, any information relevant to this purpose should be included. Financial statements can also be a short document that communicates a certain type of information about a company's financial health. For example, if all assets, liabilities, and equity statements can fit within that length, a balance sheet may only be a few pages long.

Question 2

A general purpose financial report is a report that displays all of the financial data relevant to a company. This is done to fulfill the demands of all readers, not just those of a particular group, such as investors, shareholders, corporate leaders, or budget planners. The name of the report, general purpose financial report, implies that it is a broad examination of the company's finances.

It includes;

•  Income statements, which cover income from investors and sales, 
• cash flow statements, which cover all of the operational expenses the business has to operate
• a balance sheet, which shows how much the business owns in assets and how much it owes in liabilities 

In addition, the general purpose financial report also includes total estimates for several categories, such as expenses, assets, and liabilities. The company, for example, may have a large list of monthly expenses that are required to run the business to its maximum potential. Rather than outlining all of the expenses on multiple pages, the general purpose financial report provides total numbers, allowing readers to see just how much money is spent each month.

In conclusion,  general purpose financial report has many readers, implying that it serves multiple functions. Shareholders and investors can use the information and data in the report to figure out how well the company is doing financially and whether its investments are sound. If the report is made public, anyone can read it to understand how the company spends its money internally and how much it earns from products or services. Business executives can use the general purpose financial report to evaluate if there are any budget adjustments that need to be made to remove liabilities or cut costs.

Question 3

a)  Separate entity- The separate entity notion states that we should always keep track of a business's and its owners' transactions separately. The notion is especially important in the case of a sole proprietorship, because this is the condition in which the owner's personal and company activities are most prone to become entangled.

The concept of a separate entity should be applied to a company's functioning divisions, so that we can ascertain the same information for each division individually. At the division level, the concept is more difficult to apply since there is a propensity to allocate corporate expenses to each of the subsidiaries; this makes determining profitability and financial situation at the operating unit level more challenging.

Once the policies and procedures for accounting for a separate business have been established, they must be followed consistently; otherwise, transactions involving the owners or the separate corporation will remain a gray area.

The separate entity notion is advantageous in the event of a legal judgment against a company, because the owner does not want his or her personal assets confused with the company's and so forfeited. Furthermore, the separate entity notion is helpful in identifying a company's genuine profitability and financial status.

 [b] continuity,- Going concern is an accounting assumption that assumes a business will continue to exist indefinitely. Because the company will continue to exist, it is the basis for using historical cost to value accounts rather than liquidation value. The auditor's examination of an entity's ability to continue as a going concern is addressed in SAS Number 59. If there is serious question about a client's capacity to continue as a going concern for a period of not more than one year after the financial statements are issued, the auditor must assess.

[c] unit of measure- The unit of measure idea is a conventional accounting rule that states that all transactions must be documented in the same currency. For example, a corporation with records in the United States would record all transactions in US dollars, but a company with records in Germany would record all transactions in Euros. When a transaction involves receipts or payments in a different currency, the amount is first converted to the organization's native currency. It would be impossible to produce financial accounts without a common unit of measurement.

[d] time period - The accounting rule that time can be split into separate and consecutive periods and that accounting transactions may be allocated to these periods using criteria established by other rules and principles is known as the time period assumption. It is one of a handful of fundamental accounting rules and principles that apply to both cash and accrual accounting, as well as its variations.

The accountant can use the time period assumption to assess the performance of firms and other economic entities. The accountant will be unable to record individual transactions in various time periods if time is not separated into multiple periods. The accountant will be unable to aggregate and compare transactions against one another in order to measure various aspects of the business' activity if transactions are not documented in separate time periods.

Step-by-step explanation

Question 4

Yes, The information provided in financial statement is sufficient to come up with
sound economic decisions

The financial data documented on a company's financial statements, such as the balance sheet, income statement, and cash flow statement, is critical to making sound economic decisions. Financial statements for publicly traded companies are prepared and presented to the Securities and Exchange Commission in accordance with the Financial Accounting Standard Board's (FASB) financial accounting rules (SEC).

Economists and analysts utilize financial statement data to make judgements about a company's merit and valuation, allowing them to create price goals and assess whether a stock's price is reasonable. Investors would have less understanding of stock and bond issuers' history, current, and future financial health if financial accounting information was not available. The FASB's regulations ensure consistency in the date and structure of financial reports, so economists are less likely to be exposed to accounting data that has been filtered based on a company's current state.

Question 5. 

What financial statement best describes the following attributes of an enterprise:
[a] liquidity;- The cash flow statement shows cash transaction activity and gives a picture of a company's overall liquidity. It sums up all cash inflows and outflows over the course of an accounting period to give a total cash available figure. The three sections of a standard cash flow statement are operating, investment, and financing. The net rise and reduction in total cash in each of these three areas is highlighted in this financial statement.

 [b] solvency;-  Balance sheet statement-The balance sheet and cash flow statement are used to determine a company's solvency. The company's balance sheet summarizes all of the company's assets and liabilities. If the realizable value of a company's assets exceeds its liabilities, it is considered solvent. If the realizable value is less than the total amount of liabilities, the company is insolvent.

 [c] financial structure; balance sheet, the income statement, and the cash flow statement are all used in describing financial structure of a company. The balance sheet, income statement, and cash flow statement each have their own set of details, yet they're all connected. The three statements together provide a complete picture of the company's operations.

 [d] capacity for adaptation; Balance sheet is  the financial statement that best describes capacity for adaptation. The ability of an entity to change or modify its resource base, whether as a result of changes in economic conditions, new opportunities, or mandates from controlling bodies, is referred to as capacity for adaptation.

 [e] performance-  Income statement best describes the company's financial performance The income statement presents the company's revenue, costs, gross profit, selling and administrative expenses, other expenses and income, taxes paid, and net profit in a logical and consistent manner.