Test: Financial Statements Of Sole - 1

Financial statements is the final stage in preparing final accounts. It is prepared to know profitability of the business and is prepared at the end so it is called as final accounts.

The Income Statement is one of a company’s core financial statements that shows their profit and loss over a period of time. The profit or loss is determined by taking all revenues and subtracting all expenses from both operating and non-operating activities.

The income statement is one of three statements used in both corporate finance (including financial modeling) and accounting. The statement displays the company’s revenue, costs, gross profit, selling and administrative expenses, other expenses and income, taxes paid, and net profit, in a coherent and logical manner.

Financial statements are written records that convey the business activities and the financial performance of a company. Financial statements are often audited by government agencies, accountants, firms, etc. to ensure accuracy and for tax, financing, or investing purposes. Financial statements include:

• Balance sheet
• Income statement
• Cash flow statement.

Discount received will appear in profit & loss account statement credit side, discount received by the buyer when seller allow discount. Generally discount allowed by the supplier when transaction happened on credit basis, such as trade discount, early payment discounts and high volume purchase discounts.

Fixed assets can include buildings, computer equipment, software, furniture, land, machinery, and vehicles. For example, if a company sells produce, the delivery trucks it owns and uses are fixed assets.

An expenditure which results in the acquisition of permanent asset which is intended to be permanently used in the business for the purpose of earning revenue is capital expenditure. 

It is the money spent by a business organization on acquiring or maintaining fixed assets such as land, building and equipment. 

In business, Deferred Revenue Expenditure is an expense which is incurred while accounting period. For example, revenue used for advertisement is deferred revenue expenditure because it will keep showing its benefits over the period of two to three years.

► Capital receipts can be found in the balance sheet.

► Revenue receipts can be found in the income statement. 

► Capital receipts either reduce the assets of the company or create liability for the company.