Question

Consider the following two statements:

I. The income statement measures the flow of funds into (i.e. revenue) and out of (i.e. expenses) the firm over a certain time period. It is always based on accounting data.

II. The balance sheet is a financial statement measuring the flow of funds into and out of various accounts over time while the income statement measures the progress of the firm at a point in time.

Options:

Only Statement II is true

Both statements are true

Both statements are false

Only Statement I is true

Which one of the following is meaningless?

Options:

Comparing financial ratios over a period of time.

Measuring performance using financial ratios against other organizations.

Using a financial ratio on its own.

Comparing financial ratios against industry averages.

Answer 1

1) only statement 1 is true

( Income statement measures the flow of funds into and flow out of the firm over a period of time. Balance sheet shows the funds that flow into the firm and Flow out of the firm at a point of time.)

2) using a financial ratio of its own

( Financial ratios are constructed to be compared to a company standard or historical or industry data. It helps to draw conclusions about the financial status of the company. However financial ratio of its own is meaningless.lt shouldn't be used in isolation )