Limitations of financial statements:

• Financial statements show a company's financial health by providing information on its revenue, expenses, and assets.
• The Income Statement is used to determine a company's net profit or loss.
• Why is historical data a limitation of financial statements?

  May not reflect future conditions
• The Income Statement shows revenue and expenses to determine net profit or loss.
• What is the purpose of financial statements?

  Comprehensive financial overview
• Order the activities tracked by the Cash Flow Statement:

  1️⃣ Operating activities

  2️⃣ Investing activities

  3️⃣ Financing activities
• Estimates used in financial statements can lead to potential inaccuracies.


  True
• Why might historical data not accurately reflect current business conditions?

  One-time events
• What is affected by differences in accounting principles between companies?

  Comparability
• Retail companies may focus on Gross Profit Margin and Inventory Turnover
• Financial statements provide a comprehensive overview of a company's financial health.


  True
• The Cash Flow Statement tracks the movement of cash into and out of the company.


  True
• Match the financial statement with its purpose:

  Income Statement ↔️ Shows net profit or loss

  Balance Sheet ↔️ Reports assets, liabilities, and equity

  Cash Flow Statement ↔️ Tracks movement of cash
• What does the Income Statement indicate about a company?

  Profitability
• Historical data is a key limitation because it is based on past events.
• Match the non-monetary factor with its description:

  Intangible Assets ↔️ Trademarks and patents

  Customer Loyalty ↔️ Consistent customer purchases

  Brand Reputation ↔️ Public perception of the company
• What is one example of a non-monetary factor that impacts a business but is not reflected in financial statements?

  Brand reputation
• Analyzing financial statements alone provides a complete understanding of a company's overall health.

  False
• Undervaluing liabilities improves the balance sheet by reducing total debt.

  True
• What is one factor that contributes to financial statement manipulation?

  Incentive
• Which financial statement reports a company's assets, liabilities, and equity at a specific point in time?

  Balance Sheet
• What does the Income Statement indicate about a company's financial health?

  Profitability
• What is one limitation of financial statements regarding their use of historical data?

  May not reflect future conditions
• Why might past events in financial statements not accurately reflect current or future business conditions?

  One-time events
• What makes comparing financial statements across companies challenging?

  Variations in standards
• How does subjectivity in accounting principles affect financial statements?

  Affects perceived health
• Match the financial statement with its purpose:

  Income Statement ↔️ Shows revenue and expenses

  Balance Sheet ↔️ Reports assets, liabilities, and equity

  Cash Flow Statement ↔️ Tracks movement of cash
• What does the Cash Flow Statement track?

  Movement of cash
• Match the limitation of financial statements with its explanation:

  Historical Data ↔️ May not reflect future conditions

  Estimates ↔️ Use assumptions and judgments

  Subjectivity ↔️ Accounting policies can be biased
• What does the Income Statement show over a period of time?

  Net profit or loss
• The Income Statement shows revenue and expenses to determine net profit or loss
• Who uses financial statements to make informed decisions about a company?

  Investors, lenders, managers
• What does subjectivity in accounting policies make difficult?

  Comparing companies
• Accounting principles can significantly impact the content of financial statements.


  True
• Match each impact with its explanation:

  Subjectivity ↔️ Allows discretion in presentation

  Comparability ↔️ Variations in accounting practices
• The three key financial statements provide a comprehensive overview of a company's financial health.


  True
• Which financial statement shows revenue and expenses to determine net profit or loss?

  Income Statement
• The Income Statement determines the company's net profit or loss
• Order the key purposes of the three main financial statements:

  1️⃣ Determine net profit or loss (Income Statement)

  2️⃣ Report assets, liabilities, and equity (Balance Sheet)

  3️⃣ Track movement of cash (Cash Flow Statement)
• How do accounting principles affect financial statements?

  Subjectivity and comparability