Last Updated 10 Jul 2021

The Usefulness Of Financial Statements

Words 1006 (4 pages)

For accounting information to be useful for financial judgments decisions, it must have some characteristics. They include Relevancy; this is the capacity of the information generated to make a difference in decision-making. Timeliness; information should be relevant and should be produced during relevant time containing information in market prices prevailing at that time, if for example its prepared after lets say 5 years it would be irrelevant. Reliability; the information prepared should be reliable for decision making i. e. they are accurately measured.

From the financial statements prepared by the company, they contain al the above requirements for the information to have relevancy but the challenge contains some sources of income which u cannot estimate its future with certainty. These include donations, grants and sponsorship. The charity ha received grants, donations and sponsorships of unrestricted funds of 153,000 restricted funds of 788,000 endowment fund of 368,000 in the year 2007 which total to 1309,000 while in year 2006, it was 1,192,000. Although there is a decrease in this form of incoming resources, it is certainty as income is not known with a reasonable degree. This form of income was received from various people for various reasons or activities some of which are not ongoing.

The donors for these activities include American friend of Dulwich 246,000 Dr. Mortimer & Theresa Sackler Foundation 195,000, Friends of Dulwich Picture Gallery 82,000Estate of Edith Callam 30,000 Fortis 70,000 , 1811 club Defensans circle and other patrons 62,000, In memory of Bill and Anita Greenoff 40,000, The City Bridge Trust 40,000, London Borough of Southwark 28,000, Bank of America 25,000, Linbury trust 21,000, Concheme charitable trust 17,000, Estate of Seumas Finn 35,000, Lillian jean Kaplan foundation 13,000, Dulwich Village Preservation Society 10,000, Other donations for education 61,000, Other donations for Exhibitions 36,000, Other donations for Collections 44,000, Donations by visitors to the Gallery including gift aid 2,000, Other sponsorship and donations 30,000.

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All this donations are based on decisions of the donor in question and the gallery can not estimate the amount. From the information provided above about donations, grants and sponsorships, it shows it is from a wide variety of contributors who have no contractual commitment to continue donating to the charity. It is very difficult to rely on such kind of information in decision making about expenditure. Such income is recognized as to when t is received it can not be accrued before actual contributions are made.

If the sponsor, grantor or donor indicates the purpose, the period he wants the money to be used, then it will be recognized at that period of use and it becomes very difficult to decide whish information should be used about the income for decision making. Therefore, the charity trustee cannot with a degree of confidence make a decision relating to grant, donations and sponsorship because of their nature. Other sources of incoming resources for the charity can be estimated with certainty and prudence.

Income from shop sales, catering and gallery hire can be estimated and they are seen to join from time to time. In the year 2007 shop sales were 256,000 catering and gallery hire were 60,000, while in the year 2006 they were 210,000 and 67,000 for shop sales and catering respectively. This form of income can be estimated because it relates to activities which are in control by the management. They have also income from charitable activities which is uncertain since it is not easier to estimate the income from education, exhibitions sales, admission charges and other collections.

However, if the charity management manages the activities properly, they will be bale to estimate the income from this system. Most exhibitions depend mostly on the marketing ability of the firm in question. The same case relates to expenditure of this charity. Expenditure for designated or restricted income is to be used for designated expenses. Such kind of expenditure at times becomes uncertain since you cannot estimate how much income you are going to have at the end of the year since most of the income is from individuals whom you cannot control.

In general, there is a great improvement in the financial performance of the fund since the income within is increasing. In order for the financial statements of this charity to have reliable and useful information, some information is necessary. The information that is required includes the statements of cash flows. The statements of cash flows is a statement which reports cash receipts and payments in the period of their occurrence classified as operating, investing and financing activities. It provides with information about non cash items that are in the income and expenditure account.

It has to explain the changes in the balance sheet and the actual free cash flow in the organization. For the charity, this will include; donations received, sale of property, purchase of property and any other donations given or charities issued. The main key performance measure in this statement is cash fro operations which is the cash effect of all transactions that are involved in the day-to-day running of the charity. It is reported directly or indirectly in reconciling the financial statements.

The other information required is the foot note in the accounts. The foot notes provide information that argument the financial statements. They are; integral part of the financial statements and it explains actities such as accounting methods used, assumptions made, estimates used to develop the information reported in the financial statements. The footnotes assist the users to improve assessments of the amounts, timing and uncertainty of the estimates reported in the financial statements. Footnotes provide additional disclosures which assist in decision making.

In this case of Dulwich, we need a footnote for contingencies and pledges made by donors. This will assist in decision making. We should also have prospective information that discusses the significant effects of currently known trends, events and uncertainties among charities. It should also provide us with information on how the activities of the fund are used. They should provide policies on the charities they are involved in to persist in decision making. The information about the auditor is also necessary.

The Usefulness Of Financial Statements essay

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