Page 140 - Book-keeping for Secondary Schools Student’s Book Form One

Book-Keeping for Secondary Schools

statements may not be legally required
(except for tax purposes), but the needs Non-productive assets:
of the owners would be met through the These are assets existing in the
use of financial statements, especially in business but not fully utilised to
evaluating performance of the business generate revenue. For example, a
for the period. There are also other users large office building in excess of the
FOR ONLINE READING ONLY
who would benefit from the financial business requirements may represent
statements of a business. This is because a non-productive asset.
their understanding of financial and
operational affairs of the business can be Help in assessing the efficiency of
useful in making informed decisions. business operations
Efficiency of business operations is
Purpose of financial statements useful in ensuring that the business
Detailed descriptions of the purpose of achieves its profit-making objective.
preparing financial statements are to:
Examples of efficiency measures include
assets utilisation and frequency of stock
Show profitability of the business movements (stock turnover). Assets
Many businesses are established for the utilisation is usually used in measuring
purpose of making profits. Therefore, how well the business is using its available
it is important to measure whether this assets to make money. Stock turnover
objective has been achieved. This is is a measure used for establishing how
because, owners will have an opportunity many times a business has sold and
to evaluate whether the management has replaced its inventory during a given
met their targets or not. It will also assist period. Figures used to calculate ratios
owners in making decision on whether to for these measures are usually obtained
continue with the business or not. from financial statements. When there is

an unsatisfactory level of efficiency, the
Show the financial position of the business can plan ways to improve its
business performance.
When a business gets into a difficult
financial position, for example, being Facilitate compliance with tax laws
overburdened by liabilities, it may face Amounts of different taxes payable by the
the risk of closure due to inability to pay business are computed from the figures
debts. Similarly, when the business has obtained from financial statements. Profit
a large proportion of its assets on non- and sales figures provide a reasonable
productive assets, this creates a possibility basis for calculating taxes related to
of failure of the business in the future. turnover or profits. These figures can
On the other hand, a good proportion of be easily obtained from the business
productive assets forecasts a bright future financial statements.
for the business.

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Student’s Book Form One

Book Keeping Form 1 New 2024 FINAL.indd 132 18/10/2024 10:14