Generally Accepted Accounting Principles and Income Statement Essay

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Briefing notes

(i) The propose of the main financial statements and what they show.

Income statement

The purpose of the income statement is that it provides the stakeholders in the business such as phoenix energy the most accurate description of the company’s profitability over a set period of time.

Items shown include:

* Also known as profit loss account * Turn over (cost of sales) * The Gross profit (trading profit) * The finance over a set period of time (financial year) * Profitability and debt repayments. * Cooperation tax at the current rate (24%) * The operating expenses such as the distribution, administration and the marketing expenses. *

Position Statement

The purpose of the income statement is that it shows shareholders in Phoenix Energy the finical position the business is in.

Items shown include:

* Also known as balance sheet * Assets * Liabilities * Financed by * Depreciation * Accruals (outstanding bills in current liabilities) * Prepayments (in current assets) * Asset strength and efficiency * Cashflow

(ii) the information needs of different decision makers (2.3)

(iii) the importance of financial planning for their business (2.2)

The important of financial planning

Financial plans are plans for a business to project ahead and to forecast what their financial state will be in a period of time.

* Good to know what may occur in the future eg shortage/surplus of cash * Helps the business find out resources of finance * Helps with cost of finance * Helps the business find money to develop a new project * Lets the business know its financial performance * Helps the business to identify

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