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Question

Accounting information refers to the financial statements. The information provided by these statements can be categorised into various types. Briefly describe them.

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Solution

Accounting information can be categorised into following types:

(i) Information Relating to Profit or Surplus: Information about the profit earned or loss incurred by the business during an accounting period is made available through the income statement i.e., profit and loss account. Trading account provides information about gross profit and profit and loss account provides information about the net profit.

(ii) Information Relating to Financial Position: Information about the financial position of the enterprise is determined through position statement i.e., the balance sheet. It provides information about the assets and liabilities.

(iii) Information about Cash Flow: Cash flow statement is a statement that shows inflow and outflow of cash during a specific period. It helps in making various decisions like payment of liabilities, payment of dividend and expansion of business, etc as all these are based on the availability of cash.


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