Revision: Financial Accounting 2 >> Financial Statements of Sole Proprietorship: from Complete and Incomplete Records Accountancy Commerce (English Medium) Class 11 CBSE

• "Financial Statements are the end product of financial accounting prepared by the accounts of a business enterprise that purport to reveal the financial position of the enterprise, the result of its recent activities and an analysis of what has been done with earnings." - Smith and Ashburne
• "The Financial Statements are a summary of accounts of a business enterprise, the Balance Sheet showing the assets, liabilities and capital as on a certain date and income statement showing the results, i.e., profit or loss for the period." - John N. Myer
• "The Statements which are prepared by the business to find out profitability, efficiency, solvency, growth of business to judge the financial strength and status are called as Financial Statements."

A trading account is a simple statement that shows whether a shop or business made a profit or loss by buying and selling goods during a year by comparing total sales and stock with buying costs and direct expenses.

A Profit and Loss Account is an account in the books of a business that records all indirect incomes and expenses for a period to find out whether the business made a net profit or a net loss.

A balance sheet is a financial statement that shows the assets, liabilities, and owner’s equity of a business at a specific point in time, providing a clear picture of its financial position.

Adjustments in final accounts are changes or entries made at the end of the accounting period to include any income or expenses that were missed or need to be updated so that the financial statements show the true financial position of the business.

• Meaning & Parts: Show a business’s profit and financial position. Include Balance Sheet, P&L A/c, Cash Flow, Equity Statement, and Notes.
• Purpose: Provide a true and fair view to help users make informed decisions.
• Features: Based on past data, in monetary terms. A balance sheet is for a date; a P&L is for a period. Must be verifiable, relevant, understandable, and comparable.
• Nature: Influenced by facts, accounting concepts, conventions, standards, and judgments.
• Legal Requirement: As per the Companies Act, 2013, companies must prepare them yearly in the prescribed format (Schedule III).