Financial Statements of a Company
Class 12 Accountancy · Accountancy Part II · Chapter 3
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History
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اردو (اختیاری)
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Mathematics
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Physics
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हिंदी (ऐच्छिक)
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Physics
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اردو (کور)
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Chemistry
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Fine Art · Painting
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Biotechnology
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Business Studies
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Business Studies
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Economics
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Economics
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History
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History
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History
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Geography
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Geography
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Geography
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Psychology
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Home Science
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Home Science
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Summary
Financial statements are the basic and formal annual reports through which a company's management communicates financial information to its owners and to external parties such as investors, lenders, tax authorities and the government. They are the end products of the accounting process and include the balance sheet (position statement), the statement of profit and loss and the cash flow statement. Their nature combines recorded facts, accounting conventions, postulates such as the going-concern and money-measurement assumptions, and personal judgements about matters like depreciation and provisions. Every company registered under the Companies Act 2013 must prepare its balance sheet and statement of profit and loss in the format prescribed by Schedule III. The balance sheet is presented in a vertical form, classifying items into shareholders' funds, non-current and current liabilities, and non-current and current assets, with detailed disclosures given in the Notes to Accounts. The statement of profit and loss shows revenue from operations, other income, and expenses such as cost of materials consumed, employee benefits, finance costs and depreciation, leading to profit before and after tax and earnings per share. Financial statements help users assess profitability and financial position, but they are limited because they rely on historical cost, contain only aggregate and monetary information, involve personal bias, and are only interim reports.
Nature and objectives of financial statementsBalance sheet format under Schedule IIIStatement of profit and lossNotes to Accounts and disclosuresUses and limitations of financial statements
Key terms
Financial Statements
The formal annual reports—balance sheet, statement of profit and loss and cash flow statement—through which a company communicates its financial information.
Balance Sheet
A position statement showing the assets, liabilities and shareholders' funds of a company as on a particular date.
Statement of Profit and Loss
A performance statement showing revenue, expenses and the resulting profit or loss for an accounting period.
Schedule III
The schedule to the Companies Act 2013 that prescribes the format and content of the balance sheet and statement of profit and loss.
Notes to Accounts
Detailed disclosures supporting the items shown on the face of the financial statements.
Shareholders' Funds
The owners' claim in the company, comprising share capital, reserves and surplus, and money received against share warrants.
Extra questions & answers
Try one from this chapter
Financial statements are best described as: