Practicing Success
Why do financial statements of a company not reflect the current financial condition of the concern? |
Because of cash in hand Because of trade receivables Because of fixed assets Because assets are shown at historical costs |
Because assets are shown at historical costs |
Financial statements are prepared based on factual cost data recorded in accounting books. Transactions are recorded using the original or historical cost as the basis. The figures for various accounts, such as cash in hand, cash at bank, trade receivables, and fixed assets, are taken from the accounting books. These accounts represent assets purchased at different times and at different prices, which are then aggregated and shown at their respective costs. However, since financial statements do not consider market prices, they may not accurately reflect the current financial condition of the concern. |