Question

What are some important concepts that are learned about financial statements, cash control, and flexible and static budget?

What is the least important out of the 3?

Answer 1

Financial Statements throws light on the performance of the business. It educates the stakeholders about the profitability of the organization, liquidity, assets, liabilities of the organization.

Some important concepts of financial statements are as follows:

1. Profitability (Calculated from profit and loss account)

Profitability impacts the decisions of potential investors to invest or not in a particular organization. Generally, organizations with good profitability have good market value and higher share prices.

2. Assets and liabilities

Financial statements throws light on the values of assets that a firm has and the liabilities which are there.

Also, it do tell about the equity of an organization.

Important concepts of cash control are:

1. Liquidity:

Liquidity is of utmost importance for an organization since for running day to day operations, an organization requires cash. Deficiency of cash hamper the profitability of an organization while excess cash also reduces the profitability because of the interest forgone if not invested somewhere. Thus, appropriate cash management should be there.

2. Working capital:

Working capital is the difference between current assets and current liabilities. Need for working capital arises due to the presence of operating cycle. Thus, appropriate working capital should be maintained.

Important concepts of fixed and flexible budget:

Fixed buget is the budget which does not change with the level of activity while flexible budget changes with change in the level of activity.

Budgets are designed to estimate the revenues and expenses in the coming period and to frame policies accordingly.

Where static budget assumes that the conditions would remain same in the market but flexible budget assumes that market conditions would be dynamic.

Out of financial statements, cash control and flexible and static budget, the concept with the least importance is flexible and static budget since budgets are only anticipateda and does not contain true figures. However, financial statements and cash control are of higher importance for sustaining a business.