Question

ASSERTION: A Balance Sheet is a very important financial statement for owners, creditors and other users of accounting information.

REASONING: Analysis of the Balance Sheet in the form of financial ratios can provide valuable information about the financial strength and repaying capacity of the firm. Such information is very helpful to investors and creditors for taking right decisions.

Options

• A is true, and R is the correct explanation for A.

• A is true, and R is not the correct explanation for A.

• A is true, but R is false.

• A is false, but R is true.

Answer 1

A is true, and R is the correct explanation for A.

Explanation:

• The Assertion is true because the Balance Sheet is an important financial statement that shows the financial position of a business. It helps owners, creditors, and other users understand the firm’s assets, liabilities, and capital.
• The Reason is also true because analysing the Balance Sheet through financial ratios provides information about the firm’s financial strength and ability to repay its debts. This explains why the Balance Sheet is valuable for investors and creditors.
• Therefore, both Assertion and Reason are true, and the Reason is the correct explanation of the Assertion.