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Financial statement

1. What are the trends presented in a balance sheet? Discuss its purpose? 2. What are the trends presented in an operating statement? Discuss its purpose? 3. Discuss why the balance sheet and operating statement were the two main financial statement used by companies. Answers 1. A balance sheet is a record of assets, liabilities and net worth of a business at a given time. This is done to easily conclude the outcome of the business at a specific period. Net worth is computed by subtracting the liabilities from the assets.

A positive net worth means a gain in investment therefore the assets are greater than the liability. A negative net worth means a loss in investment therefore the liability is greater than the assets. 2. An operating statement is a record of company sales, cost of goods sold and expenses during a specific period of operation. This is more detailed than balance sheet. This financial sheet gives the result of operation, whether in manufacturing or sales. With this financial sheet, a forecast is made regarding the course of the company.

A manager relies on this to make his decisions regarding the number of production and the ceiling price of a certain

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product line. 3. Some of most important data a manager should consider gathering can be summarized in the balance sheet. With the balance sheet, an investor can easily conclude a positive trend in his investment. On the other hand, he can also be warned of poorly performing investment which he can opt to sell. However, poorly performing businesses can be remedied. This can be done by analysing the data presented in the operation statement.

Through good analysis of the problem, a solution can be made regarding the operation of the company. The two main financial statements were the balance sheet and operating statement. These financial statements were based on a specific period. The balance sheet is used to easily show the trend of investment, whether it is gaining or losing. The operation statement describes why the trend of investment so. Decision regarding business strategy of a company can be based from this analysis.

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