PPT - Financial Statements of a Company | Accountancy Class 12 - Commerce PDF Download

 Page 1


Financial 
Statements of a 
Company
Page 2


Financial 
Statements of a 
Company
Introduction
End Products of Accounting
Financial statements are the 
culmination of the accounting 
process, prepared following 
consistent accounting policies 
and standards prescribed in the 
Companies Act.
Sources of Information
These statements provide critical 
information about a company's 
profitability and financial position, 
serving as the foundation for 
economic decisions.
Proper Arrangement
Financial statements must be arranged in a proper form with suitable 
contents to ensure shareholders and other users can easily understand 
and meaningfully use them.
Having understood how a company raises its capital, we must now learn about 
the financial statements it prepares. These statements reflect accounting 
concepts, principles, procedures, and the legal environment in which business 
organisations operate.
Page 3


Financial 
Statements of a 
Company
Introduction
End Products of Accounting
Financial statements are the 
culmination of the accounting 
process, prepared following 
consistent accounting policies 
and standards prescribed in the 
Companies Act.
Sources of Information
These statements provide critical 
information about a company's 
profitability and financial position, 
serving as the foundation for 
economic decisions.
Proper Arrangement
Financial statements must be arranged in a proper form with suitable 
contents to ensure shareholders and other users can easily understand 
and meaningfully use them.
Having understood how a company raises its capital, we must now learn about 
the financial statements it prepares. These statements reflect accounting 
concepts, principles, procedures, and the legal environment in which business 
organisations operate.
Meaning of Financial Statements
Formal Annual Reports
Financial statements are the basic and formal 
annual reports through which corporate 
management communicates financial 
information to owners and various external 
parties.
Balance Sheet
The balance sheet (position statement) shows 
the financial position of a company as at the 
end of an accounting period, presenting assets, 
liabilities, and equity.
Statement of Profit and Loss
This statement shows the financial 
performance of a company over a specific 
period, detailing revenues, expenses, and 
resulting profit or loss.
Cash Flow Statement
The cash flow statement tracks the movement 
of cash and cash equivalents, showing inflows 
and outflows from operating, investing, and 
financing activities.
Page 4


Financial 
Statements of a 
Company
Introduction
End Products of Accounting
Financial statements are the 
culmination of the accounting 
process, prepared following 
consistent accounting policies 
and standards prescribed in the 
Companies Act.
Sources of Information
These statements provide critical 
information about a company's 
profitability and financial position, 
serving as the foundation for 
economic decisions.
Proper Arrangement
Financial statements must be arranged in a proper form with suitable 
contents to ensure shareholders and other users can easily understand 
and meaningfully use them.
Having understood how a company raises its capital, we must now learn about 
the financial statements it prepares. These statements reflect accounting 
concepts, principles, procedures, and the legal environment in which business 
organisations operate.
Meaning of Financial Statements
Formal Annual Reports
Financial statements are the basic and formal 
annual reports through which corporate 
management communicates financial 
information to owners and various external 
parties.
Balance Sheet
The balance sheet (position statement) shows 
the financial position of a company as at the 
end of an accounting period, presenting assets, 
liabilities, and equity.
Statement of Profit and Loss
This statement shows the financial 
performance of a company over a specific 
period, detailing revenues, expenses, and 
resulting profit or loss.
Cash Flow Statement
The cash flow statement tracks the movement 
of cash and cash equivalents, showing inflows 
and outflows from operating, investing, and 
financing activities.
Nature of Financial Statements
Recorded Facts
Financial statements 
reflect cost data from 
accounting books. 
Transactions are recorded 
at historical cost. Assets 
acquired at different 
times appear at their 
original costs, not current 
market values.
Accounting 
Conventions
Statements follow 
established conventions 
like valuing inventory at 
lower of cost or market 
price, and assets at cost 
less depreciation. Small 
items such as stationery 
are treated as 
expenditures rather than 
assets under the 
materiality convention.
Postulates
Statements rely on key 
assumptions: going 
concern (enterprise exists 
long-term), money 
measurement (constant 
value of money), and 
realization (revenue 
recognition upon sale, 
regardless of payment 
timing).
Personal Judgements
Financial statements 
incorporate personal 
opinion and estimates, 
including depreciation 
based on economic life, 
provisions for doubtful 
debts, and inventory 
valuation decisions4all 
guided by the 
conservatism principle.
Page 5


Financial 
Statements of a 
Company
Introduction
End Products of Accounting
Financial statements are the 
culmination of the accounting 
process, prepared following 
consistent accounting policies 
and standards prescribed in the 
Companies Act.
Sources of Information
These statements provide critical 
information about a company's 
profitability and financial position, 
serving as the foundation for 
economic decisions.
Proper Arrangement
Financial statements must be arranged in a proper form with suitable 
contents to ensure shareholders and other users can easily understand 
and meaningfully use them.
Having understood how a company raises its capital, we must now learn about 
the financial statements it prepares. These statements reflect accounting 
concepts, principles, procedures, and the legal environment in which business 
organisations operate.
Meaning of Financial Statements
Formal Annual Reports
Financial statements are the basic and formal 
annual reports through which corporate 
management communicates financial 
information to owners and various external 
parties.
Balance Sheet
The balance sheet (position statement) shows 
the financial position of a company as at the 
end of an accounting period, presenting assets, 
liabilities, and equity.
Statement of Profit and Loss
This statement shows the financial 
performance of a company over a specific 
period, detailing revenues, expenses, and 
resulting profit or loss.
Cash Flow Statement
The cash flow statement tracks the movement 
of cash and cash equivalents, showing inflows 
and outflows from operating, investing, and 
financing activities.
Nature of Financial Statements
Recorded Facts
Financial statements 
reflect cost data from 
accounting books. 
Transactions are recorded 
at historical cost. Assets 
acquired at different 
times appear at their 
original costs, not current 
market values.
Accounting 
Conventions
Statements follow 
established conventions 
like valuing inventory at 
lower of cost or market 
price, and assets at cost 
less depreciation. Small 
items such as stationery 
are treated as 
expenditures rather than 
assets under the 
materiality convention.
Postulates
Statements rely on key 
assumptions: going 
concern (enterprise exists 
long-term), money 
measurement (constant 
value of money), and 
realization (revenue 
recognition upon sale, 
regardless of payment 
timing).
Personal Judgements
Financial statements 
incorporate personal 
opinion and estimates, 
including depreciation 
based on economic life, 
provisions for doubtful 
debts, and inventory 
valuation decisions4all 
guided by the 
conservatism principle.
Objectives of Financial Statements
1
Economic Resources and Obligations
Financial statements provide adequate, reliable, and 
periodical information about economic resources 
and obligations of a business firm to investors and 
external parties who have limited authority, ability, or 
resources to obtain information.
2
Earning Capacity
They provide useful financial information which can 
be utilised to predict, compare, and evaluate the 
business firm's earning capacity, helping 
stakeholders assess performance and potential.
3
Cash Flows
Financial statements provide information useful to 
investors and creditors for predicting, comparing, 
and evaluating potential cash flows in terms of 
amount, timing, and related uncertainties.
4
Management Effectiveness
They supply information useful for judging 
management's ability to utilise the resources of a 
business effectively, allowing stakeholders to 
evaluate leadership performance.
Financial statements also report on activities affecting society and disclose significant accounting policies and concepts 
followed in the accounting process, including any changes made during the year.