Describe the purpose of preparing a Statement of Financial Position. - Scottish Highers Business Management - Question b - 2018
Question b
Describe the purpose of preparing a Statement of Financial Position.
Worked Solution & Example Answer:Describe the purpose of preparing a Statement of Financial Position. - Scottish Highers Business Management - Question b - 2018
Step 1
To state the value/net assets of the organisation
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Answer
The Statement of Financial Position provides a clear snapshot of the value of the net assets owned by the organization at a specific point in time. This information is crucial for understanding the entity’s financial health.
Step 2
Informs decision making
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By presenting the organization's assets, liabilities, and equity, the Statement of Financial Position aids stakeholders, including management and investors, in making informed decisions about future investments and operational strategies.
Step 3
Shows the working equity figure
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The document calculates the working equity, which is essential for assessing the organization's liquidity and operational efficiency. It provides insights into immediate financial obligations and the capacity to meet them.
Step 4
Used by creditors/suppliers
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Creditors and suppliers utilize this statement to evaluate the risk of lending or extending credit to the organization. Understanding the balance between liabilities and equity helps determine the financial stability and creditworthiness of the entity.
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