Question

Window dressing is a practice

• A. To manipulate accounts to show a better picture of the financial position than the actual one
• B. To show excessive depreciation
• C. To avoid tax
• D. To reduce tax

Answer 1

The Correct Option is A

Sequence of Financial Statements 

The preparation of financial statements generally follows a specific sequence to provide a comprehensive view of a company's financial performance and position. This sequence ensures that information flows logically and consistently between the statements.

Typical Sequence

The typical sequence for preparing financial statements is as follows:

1. Trading Account: This account is prepared first to determine the gross profit or gross loss from the company's trading activities (i.e., buying and selling goods).
2. Profit and Loss Account: This account takes the gross profit or gross loss from the Trading Account and deducts operating expenses to arrive at the net profit or net loss for the period.
3. Profit and Loss Appropriation Account: This account (primarily used for partnerships) shows how the net profit is distributed among the partners (e.g., salaries, interest on capital, profit sharing).
4. Balance Sheet: The Balance Sheet presents a snapshot of the company's assets, liabilities, and equity at a specific point in time. It reflects the cumulative effect of the transactions recorded in the previous accounts.

Importance of the Sequence

Following this sequence is important because each financial statement builds upon the information presented in the preceding statement. The net profit (or loss) from the Profit and Loss Account, for example, directly impacts the retained earnings section of the Balance Sheet.

Answer 2

Window dressing is the practice of manipulating accounts to present a more favorable financial position.
Hence, the correct answer is Option 1.