What is the order of completion of the primary financial statements by a company? Why must the financial statements be completed in this order?
The order of completion of financial statements is an important concept. The order of completion is: 1 - Income Statement 2 - Statement of Equity (Retained Earnings) 3 - Balance Sheet 4 - Statement of Cash Flows. The income statement is completed first to determine the Net Income/Loss of a business. This amount is needed to complete the new ending equity of the company on the Statement of Equity. The new ending equity amount is used in the completion of the Balance Sheet. From the Balance Sheet, the amount of cash for the company as well as changes in accounts is necessary for the completion of the Statement of Cash Flows. The completion of the financial statements is important and done in the same order as information generated by one statement is needed in completion of the next statement in the process.
What is the concept of elasticity of demand and why is it important to understand by business in pricing decisions?
Elasticity of demand is a measurement of responsiveness by consumers in reaction to price changes of products and services. We measure elasticity of demand by comparing the percentage change in demand, given a percentage change in the price of the product or service. This is an important concept for those making pricing decisions to understand. If consumers are more elastic in their demand for a product, this means they are price sensitive. Even a small change in price can have a large corresponding drop in demand for the product or service. On the other hand, if consumers are inelastic in demand for a product or service, the supplier of the item can increase price without seeing a large corresponding drop in the demand for the product or service.
What is the concept of Gross Domestic Product, and why is it so important to understand the components that determine GDP?
Gross Domestic Product (GDP) is the total market value of all final goods and services produced in an economy in a one year period of time. To determine this amount, we focus on the key phrases of final and market value from the definition. We must calculate the final value in order to avoid duplication of counting intermediate transactions that occur in the economy. Counting these intermediate transactions would nullify our calculation and produce an incorrect answer. We use the market value as this is the value of the product or service that is getting added to the economy. Gross Domestic Product is calculated by summing the components of: 1-Consumption 2-Government Spending 3-Investments and 4-Net Exports. An examination is needed to identify specifically which items do quality to be counted in GDP and which transactions are not included in the GDP calculation. Additional examples and definitions can be explained upon further request. The concept of Gross Domestic Product (GDP) is one of the most important in the study of Macroeconomics and should be understood fully. If questions remain regarding this concept, please let me know.