Analysis of financial statements Question Answer 2022

Running head: ANALYSIS OF FINANCIAL STATEMENTS
Analysis of Financial Statements
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1
Analysis of financial statements
Table of Contents
Questuion 1................................................................................................................................2
Question 2..................................................................................................................................6
Reference....................................................................................................................................9

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Analysis of financial statements
Questuion 1
The various assumptions of financial statement are stated below:
The accounting assumptions provides how a business is maintaining its financial
transactions and the process by which it prepares its financial statements. They provide the
structure based on which the company prepares the financial statements. These assumptions
are very essential from the view point of maintaining the financial transactions and if any one
of these conventions are not made correctly it might become essential to change the financial
data provided by the organization and conveyed by it in the financial statements. The major
conventions that are essential for preparing the financial statements are stated below:
Accrual assumptions
The accrual assumptions states that the company should recognize the revenues and
the expenses only when these are earned and used. If this assumption is not used properly
then in that case the company must record the transactions on cash basis. Using the accruals
method, it is possible for the business to more meticulously obey to the matching principle,
where revenues and the associated expenditures are recognized easily during the same year. it
is not possible to prepare financial statements without using the accrual method of accounting
(Traina 2018). The example of accrual assumptions is stated below:
Revenue accrual
A company engaged in consulting services works bill able hours on a venture that it
will ultimately invoice to a client for $10000. It can keep track of an accrual in the current
period, so that its present income statement reflects $10000 of revenue, even if it has not
raised its bill to the respective client.
Expense accrual