What went wrong when the king rode under the arch?

It was too low and knocked off his crown

How does the chain of blame unfold in the poem?

Each accused person blames another, ending with the king's own changes

What are financial statements?

They are the trading and profit and loss account and the balance sheet, which show the profitability and financial position of a business.

What is the purpose of the trading account?

It is prepared to ascertain the gross profit or gross loss from the buying and selling of goods.

How is gross profit calculated?

Gross Profit = Net Sales − Cost of Goods Sold, where cost of goods sold = opening stock + purchases + direct expenses − closing stock.

What is shown in the profit and loss account?

Indirect expenses and other incomes are recorded to convert gross profit into net profit or net loss.

What is operating profit?

It is the profit earned from the main operating activities of the business before adding non-operating incomes or deducting non-operating expenses.

What is a balance sheet?

It is a statement of assets and liabilities prepared on a particular date to show the financial position of the business.

What is meant by marshalling of assets and liabilities?

It is the arrangement of assets and liabilities in the balance sheet in a definite order, either in order of liquidity or of permanence.

What is an opening entry?

It is the journal entry passed at the beginning of a new period to bring forward the assets, liabilities and capital of the previous period.

Financial Statements - I

Q: Distinguish between capital and revenue expenditure.

Capital expenditure benefits more than one period and appears in the balance sheet, while revenue expenditure benefits only the current period and is charged to the profit and loss account.

Q: Why is the distinction between capital and revenue items important?

Because incorrect classification distorts the profit or loss and the financial position shown by the financial statements.

Class 11 Accountancy · Financial Accounting Part II · Chapter 1

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CBSE Class 11 · Accountancy

Financial statements: 24 of 80 theory marks

Marks booster + cheatsheet: key concepts in 2 lines each
12 exam traps, listed
Five calculations the paper keeps asking
Each adjustment: one entry, two effects
Both formats: trading and P&L, balance sheet
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CBSE Class 11 · AccountancyTrending

Financial Accounting-I: 56 of 80 theory marks

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44 marks: Unit 2, recording to depreciation
Journal formats and special purpose books
Traps from all seven chapters
Bank reconciliation adjustments
Depreciation formulas, book's worked figures

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Summary

Financial statements are the end products of the accounting process and communicate the profitability and financial position of a business to its stakeholders. The chapter first explains the distinction between capital and revenue items: capital expenditure benefits more than one accounting period and appears in the balance sheet, while revenue expenditure benefits only the current period and is charged to the profit and loss account; similarly, capital receipts and revenue receipts are distinguished. The two main financial statements of a sole proprietorship are the trading and profit and loss account and the balance sheet. The trading account is prepared to find the gross profit or gross loss, calculated as net sales less the cost of goods sold (opening stock plus purchases plus direct expenses less closing stock). The profit and loss account then deducts indirect expenses and adds other incomes to arrive at the net profit or net loss; operating profit is the profit from the main operations before non-operating items. Closing entries transfer the relevant balances to these accounts. The balance sheet is a statement of assets and liabilities showing the financial position on a particular date, and assets and liabilities are grouped and marshalled in a definite order, such as liquidity or permanence. The chapter also explains the opening entry, by which the assets, liabilities and capital of a previous period are brought into the books.

Stakeholders and their information needsCapital and revenue expenditure and receiptsTrading and profit and loss accountGross profit, net profit and operating profitBalance sheet, marshalling and opening entry

Key terms

Financial Statements

The trading and profit and loss account and the balance sheet that communicate the profitability and financial position of a business.

Capital Expenditure

Expenditure whose benefit extends to more than one accounting period and which appears in the balance sheet.

Trading Account

An account prepared to ascertain the gross profit or gross loss from buying and selling of goods.

Gross Profit

The excess of net sales over the cost of goods sold, found in the trading account.

Balance Sheet

A statement showing the assets and liabilities of a business on a particular date to reveal its financial position.

Marshalling

The arrangement of assets and liabilities in the balance sheet in a definite order, such as liquidity or permanence.

Extra questions & answers

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Adjustments while preparing final accounts are needed because accounting follows the:

Flashcards & interactive practice