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ACCA Applied Knowledge · Financial Accounting · The context and purpose of financial statements for external reporting

A supplier is deciding whether to allow Kelso Co to purchase goods on 60 days' credit. Which information in Kelso Co's financial statements would be MOST relevant to this decision?

The most relevant information is current assets, current liabilities and the cash position, because these show whether Kelso Co can pay its short-term debts when they fall due. Shareholder measures like earnings per share or dividend cover do not help a supplier assess payment risk.

  1. AEarnings per share and dividend cover
  2. BCurrent assets, current liabilities and cash positionCorrect
  3. CThe directors' remuneration disclosures
  4. DSegment analysis of revenue by geographical region

Explanation

A trade supplier wants to know if it will be paid on time, so short-term liquidity is key. Current assets, current liabilities and cash show this. Earnings per share and dividend cover concern shareholders, and the other items do not help assess short-term payment ability.

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