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Concept of Financial Statements

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Topics

  • Introduction
  • Definition: Financial Statement
  • Objectives
  • Characteristics
  • Nature
  • Essentials of Financial Statements
  • Uses and Importance
  • Limitations
Maharashtra State Board: Class 12
CISCE: Class 12

Definition: Financial Statements

  • "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."
CBSE: Class 12
Maharashtra State Board: Class 12
CISCE: Class 12

Key Points: Financial Statements

  • 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).

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