Define these terms: financial statement, balance sheet, income statement, and audit. Explain the use of each.

Question

What will be an ideal response?

Answer 1

Financial statement: a summary of some aspect of an organization's financial status. The information contained in financial statements is essential in helping managers maintain financial control over the organization.

Balance sheet: a summary of an organization's overall financial worth (assets and liabilities) at a specific point in time. This document helps managers understand how much their business is worth.

Income statement: a summary of an organization's financial results (revenues and expenses) over a specified period of time. This document helps managers determine the profit or loss over the specific period of time.

Audits: formal verifications of an organization's financial and operational systems. Audits are of two types. An external audit is formal verification of an organization's financial accounts and statements by outside experts. An internal audit is a verification of an organization's financial accounts and statements by the organization's own professional staff. Audits are tools for management decision making; they often require collecting, analyzing, and interpreting large amounts of information.