Author Question: Average inventory is computed by adding the inventory at the beginning of the period to the ... (Read 73 times)

theo · **on:** Jul 5, 2018

Average inventory is computed by adding the inventory at the beginning of the period to the inventory at the end ofthe period and dividing by two.
a. True
b. False

Indicate whether the statement is true or false

Question 2

Explain the purpose of each financial statement and the type of information found in each statement.

What will be an ideal response?

mmpiza · **Reply #1 on:** Jul 5, 2018

Answer to Question 1

True

Answer to Question 2

The four financial statements are called the balance sheet, income statement, statement of changes in shareholders' equity, and statement of cash flows. The purpose of the balance sheet is to present the financial situation of a company as of a specific date. It lists the assets, or what a business owns; the liabilities, or the amount owed to creditors; and shareholder's equity, the residual ownership, or what the owners of a business own free and clear.

The income statement is also called a profit and loss statement. It lists the sales revenues of a business. Then expenses incurred to run the business are subtracted from sales revenues. The result is either a profit or loss from running the business.

The statement of changes in shareholder's equity describes the changes in shareholder's equity during an accounting period. There are two sections: one which shows the change in contributed capital and the other which starts with beginning retained earnings then adds net income and subtracts distributions to owners to arrive at an ending retained earnings.

The statement of cash flows presents all of the cash coming into a business and all of the cash going out of a business during an accounting period. The cash transactions are grouped into operating, investing, and financing activities. Operating activities are the day-to-day activities involved in running a business. Investing activities involve the buying or selling of equipment used to run the business. Financing activities involve raising money from outside the business, such as borrowing money from a bank and repaying these amounts. Taken together, these financial statements provide business owners with a picture of how well their business is doing financially.