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

Which of the following statements about the financial statements of a limited liability company is correct?

The statement of financial position shows assets, liabilities and equity at a specific date, so it reports financial position at a point in time. The statement of profit or loss reports income and expenses over a period, so it reports performance. Neither is a pure cash statement.

  1. AThe statement of financial position shows the entity's financial position at a point in time, while the statement of profit or loss shows performance over a periodCorrect
  2. BThe statement of financial position shows performance over a period, while the statement of profit or loss shows position at a date
  3. CBoth statements show only cash movements during the period
  4. DNeither statement is required to be prepared by a company reporting under IFRS

Explanation

The statement of financial position is a snapshot of assets, liabilities and equity at the reporting date. The statement of profit or loss reports income and expenses for the period on the accruals basis, not only cash. The other options misstate this.

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