Commerce Exam  >  Commerce Notes  >  Accountancy Class 12  >  NCERT Textbook - Financial Statements of a Company

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

Download, print and study this document offline
Please wait while the PDF view is loading
 Page 1


144 Accountancy : Company Accounts and Analysis of Financial Statements
H
aving understood how a company raises its
capital, we have to learn the nature, objectives
and types of financial statements it has to prepare
including their contents, format, uses and
limitations. The financial statements are the end
products of accounting process. They are prepared
following accounting policies consistently
accounting standards prescribed in the Companies
Act and accounting concepts, principles,
procedures and also the legal environment in which
the business organisations operate. These
statements are the outcome of the summarising
process of accounting and are, therefore, the
sources of information on the basis of which
conclusions are drawn about the profitability and
the financial position of a company. Hence, they
need to be arranged in a proper form with suitable
contents so that the shareholders and other users
of financial statements can easily understand and
use them in their economic decisions in a
meaningful way.
3.1 Meaning of Financial Statements
Financial statements are the basic and formal
annual reports through which the corporate
management communicates financial information
to its owners and various other external parties
which include investors, tax authorities,
government, employees, etc. These refer to: the
balance sheet (position statement) as at the end of
accounting period, the statement of profit and loss
of a company and the cash flow statement
Financial Statements of a Company 3
LEARNING OBJECTIVES
After studying this chapter ,
you will be able to :
• explain the nature and
objectives of financial
statements of a
company;
• describe the form and
content of Statement of
Profit and Loss of a
company as per
schedule III;
• describe the form and
content of balance sheet
of a company as per
schedule III;
• explain the significance
and limitations of
financial statements;
and
• prepare the financial
statements.
Rationalised 2023-24
Page 2


144 Accountancy : Company Accounts and Analysis of Financial Statements
H
aving understood how a company raises its
capital, we have to learn the nature, objectives
and types of financial statements it has to prepare
including their contents, format, uses and
limitations. The financial statements are the end
products of accounting process. They are prepared
following accounting policies consistently
accounting standards prescribed in the Companies
Act and accounting concepts, principles,
procedures and also the legal environment in which
the business organisations operate. These
statements are the outcome of the summarising
process of accounting and are, therefore, the
sources of information on the basis of which
conclusions are drawn about the profitability and
the financial position of a company. Hence, they
need to be arranged in a proper form with suitable
contents so that the shareholders and other users
of financial statements can easily understand and
use them in their economic decisions in a
meaningful way.
3.1 Meaning of Financial Statements
Financial statements are the basic and formal
annual reports through which the corporate
management communicates financial information
to its owners and various other external parties
which include investors, tax authorities,
government, employees, etc. These refer to: the
balance sheet (position statement) as at the end of
accounting period, the statement of profit and loss
of a company and the cash flow statement
Financial Statements of a Company 3
LEARNING OBJECTIVES
After studying this chapter ,
you will be able to :
• explain the nature and
objectives of financial
statements of a
company;
• describe the form and
content of Statement of
Profit and Loss of a
company as per
schedule III;
• describe the form and
content of balance sheet
of a company as per
schedule III;
• explain the significance
and limitations of
financial statements;
and
• prepare the financial
statements.
Rationalised 2023-24
145 Financial Statements of a Company
3.2 Nature of Financial Statements
The chronologically recorded facts about events expressed in monetary terms
for a defined period of time are the basis for the preparation of periodical financial
statements which reveal the financial position as on a date and the financial
results obtained during a period. The American Institute of Certified Public
Accountants states the nature of financial statements as, “the statements
prepared for the purpose of presenting a periodical review of report on progress
by the management and deal with the status of investment in the business and
the results achieved during the period under review. They reflect a combination
of recorded facts, accounting principles and personal judgements”.
The following points explain the nature of financial statements:
1. Recorded Facts: Financial statements are prepared on the basis of
facts in the form of cost data recorded in accounting books. The original
cost or historical cost is the basis of recording transactions. The figures
of various accounts such as cash in hand, cash at bank, trade
receivables, fixed assets, etc., are taken as per the figures recorded in
the accounting books. The assets purchased at different times and at
different prices are put together and shown at costs. As these are not
based on market prices, the financial statements do not show current
financial condition of the concern.
2. Accounting Conventions: Certain accounting conventions are followed
while preparing financial statements. The convention of valuing
inventory at cost or market price, whichever is lower, is followed. The
valuing of assets at cost less depreciation principle for balance sheet
purposes is followed. The convention of materiality is followed in dealing
with small items like pencils, pens, postage stamps, etc. These items
are treated as expenditure in the year in which they are purchased
even though they are assets in nature. The stationery is valued at cost
and not on the principle of cost or market price, whichever is less. The
use of accounting conventions makes financial statements comparable,
simple and realistic.
3. Postulates: Financial statements are prepared on certain basic
assumptions (pre-requisites) known as postulates such as going
concern postulate, money measurement postulate, realisation
postulate, etc. Going concern postulate assumes that the enterprise is
treated as a going concern and exists for a longer period of time. So the
assets are shown on historical cost basis. Money measurement
postulate assumes that the value of money will remain the same in
different periods. Though there is drastic change in purchasing power
of money, the assets purchased at different times will be shown at
Rationalised 2023-24
Page 3


144 Accountancy : Company Accounts and Analysis of Financial Statements
H
aving understood how a company raises its
capital, we have to learn the nature, objectives
and types of financial statements it has to prepare
including their contents, format, uses and
limitations. The financial statements are the end
products of accounting process. They are prepared
following accounting policies consistently
accounting standards prescribed in the Companies
Act and accounting concepts, principles,
procedures and also the legal environment in which
the business organisations operate. These
statements are the outcome of the summarising
process of accounting and are, therefore, the
sources of information on the basis of which
conclusions are drawn about the profitability and
the financial position of a company. Hence, they
need to be arranged in a proper form with suitable
contents so that the shareholders and other users
of financial statements can easily understand and
use them in their economic decisions in a
meaningful way.
3.1 Meaning of Financial Statements
Financial statements are the basic and formal
annual reports through which the corporate
management communicates financial information
to its owners and various other external parties
which include investors, tax authorities,
government, employees, etc. These refer to: the
balance sheet (position statement) as at the end of
accounting period, the statement of profit and loss
of a company and the cash flow statement
Financial Statements of a Company 3
LEARNING OBJECTIVES
After studying this chapter ,
you will be able to :
• explain the nature and
objectives of financial
statements of a
company;
• describe the form and
content of Statement of
Profit and Loss of a
company as per
schedule III;
• describe the form and
content of balance sheet
of a company as per
schedule III;
• explain the significance
and limitations of
financial statements;
and
• prepare the financial
statements.
Rationalised 2023-24
145 Financial Statements of a Company
3.2 Nature of Financial Statements
The chronologically recorded facts about events expressed in monetary terms
for a defined period of time are the basis for the preparation of periodical financial
statements which reveal the financial position as on a date and the financial
results obtained during a period. The American Institute of Certified Public
Accountants states the nature of financial statements as, “the statements
prepared for the purpose of presenting a periodical review of report on progress
by the management and deal with the status of investment in the business and
the results achieved during the period under review. They reflect a combination
of recorded facts, accounting principles and personal judgements”.
The following points explain the nature of financial statements:
1. Recorded Facts: Financial statements are prepared on the basis of
facts in the form of cost data recorded in accounting books. The original
cost or historical cost is the basis of recording transactions. The figures
of various accounts such as cash in hand, cash at bank, trade
receivables, fixed assets, etc., are taken as per the figures recorded in
the accounting books. The assets purchased at different times and at
different prices are put together and shown at costs. As these are not
based on market prices, the financial statements do not show current
financial condition of the concern.
2. Accounting Conventions: Certain accounting conventions are followed
while preparing financial statements. The convention of valuing
inventory at cost or market price, whichever is lower, is followed. The
valuing of assets at cost less depreciation principle for balance sheet
purposes is followed. The convention of materiality is followed in dealing
with small items like pencils, pens, postage stamps, etc. These items
are treated as expenditure in the year in which they are purchased
even though they are assets in nature. The stationery is valued at cost
and not on the principle of cost or market price, whichever is less. The
use of accounting conventions makes financial statements comparable,
simple and realistic.
3. Postulates: Financial statements are prepared on certain basic
assumptions (pre-requisites) known as postulates such as going
concern postulate, money measurement postulate, realisation
postulate, etc. Going concern postulate assumes that the enterprise is
treated as a going concern and exists for a longer period of time. So the
assets are shown on historical cost basis. Money measurement
postulate assumes that the value of money will remain the same in
different periods. Though there is drastic change in purchasing power
of money, the assets purchased at different times will be shown at
Rationalised 2023-24
146 Accountancy : Company Accounts and Analysis of Financial Statements
the amount paid for them. While, preparing statement of profit and
loss the revenue is included in the sales of the year in which the sale
was undertaken even though the sale price may be received over a
number of years. The assumption is known as realisation postulate.
4. Personal Judgements: Under more than one circumstance, facts and
figures presented through financial statements are based on personal
opinion, estimates and judgements. The depreciation is provided taking
into consideration the useful economic life of fixed assets. Provisions
for doubtful debts are made on estimates and personal judgements.
In valuing inventory, cost or market value, whichever is less is being
followed. While deciding either cost of inventory or market value of
inventory, many personal judgements are to be made based on certain
considerations. Personal opinion, judgements and estimates are made
while preparing the financial statements to avoid any possibility of
over statement of assets and liabilities, income and expenditure,
keeping in mind the convention of conservatism.
Thus, financial statements are the summarised reports of recorded facts
and are prepared the following accounting concepts, conventions, accounting
policies, accounting standards and requirements of Law.
3.3 Objectives of Financial Statements
Financial statements are the basic sources of information to the shareholders
and other external parties for understanding the profitability and financial
position of any business concern. They provide information about the results of
the business concern during a specified period of time in terms of assets and
liabilities, which provide the basis for taking decisions. Thus, the primary
objective of financial statements is to assist the users in their decision-making.
The specific objectives include the following:
1. To provide information about economic resources and obligations of
a business: They are prepared to provide adequate, reliable and
periodical information about economic resources and obligations of a
business firm to investors and other external parties who have limited
authority, ability or resources to obtain information.
2. To provide information about the earning capacity of the business:
They are to provide useful financial information which can gainfully
be utilised to predict, compare and evaluate the business firm’s earning
capacity.
3. To provide information about cash flows: They are to provide
information useful to investors and creditors for predicting, comparing
and evaluating, potential cash flows in terms of amount, timing and
related uncertainties.
Rationalised 2023-24
Page 4


144 Accountancy : Company Accounts and Analysis of Financial Statements
H
aving understood how a company raises its
capital, we have to learn the nature, objectives
and types of financial statements it has to prepare
including their contents, format, uses and
limitations. The financial statements are the end
products of accounting process. They are prepared
following accounting policies consistently
accounting standards prescribed in the Companies
Act and accounting concepts, principles,
procedures and also the legal environment in which
the business organisations operate. These
statements are the outcome of the summarising
process of accounting and are, therefore, the
sources of information on the basis of which
conclusions are drawn about the profitability and
the financial position of a company. Hence, they
need to be arranged in a proper form with suitable
contents so that the shareholders and other users
of financial statements can easily understand and
use them in their economic decisions in a
meaningful way.
3.1 Meaning of Financial Statements
Financial statements are the basic and formal
annual reports through which the corporate
management communicates financial information
to its owners and various other external parties
which include investors, tax authorities,
government, employees, etc. These refer to: the
balance sheet (position statement) as at the end of
accounting period, the statement of profit and loss
of a company and the cash flow statement
Financial Statements of a Company 3
LEARNING OBJECTIVES
After studying this chapter ,
you will be able to :
• explain the nature and
objectives of financial
statements of a
company;
• describe the form and
content of Statement of
Profit and Loss of a
company as per
schedule III;
• describe the form and
content of balance sheet
of a company as per
schedule III;
• explain the significance
and limitations of
financial statements;
and
• prepare the financial
statements.
Rationalised 2023-24
145 Financial Statements of a Company
3.2 Nature of Financial Statements
The chronologically recorded facts about events expressed in monetary terms
for a defined period of time are the basis for the preparation of periodical financial
statements which reveal the financial position as on a date and the financial
results obtained during a period. The American Institute of Certified Public
Accountants states the nature of financial statements as, “the statements
prepared for the purpose of presenting a periodical review of report on progress
by the management and deal with the status of investment in the business and
the results achieved during the period under review. They reflect a combination
of recorded facts, accounting principles and personal judgements”.
The following points explain the nature of financial statements:
1. Recorded Facts: Financial statements are prepared on the basis of
facts in the form of cost data recorded in accounting books. The original
cost or historical cost is the basis of recording transactions. The figures
of various accounts such as cash in hand, cash at bank, trade
receivables, fixed assets, etc., are taken as per the figures recorded in
the accounting books. The assets purchased at different times and at
different prices are put together and shown at costs. As these are not
based on market prices, the financial statements do not show current
financial condition of the concern.
2. Accounting Conventions: Certain accounting conventions are followed
while preparing financial statements. The convention of valuing
inventory at cost or market price, whichever is lower, is followed. The
valuing of assets at cost less depreciation principle for balance sheet
purposes is followed. The convention of materiality is followed in dealing
with small items like pencils, pens, postage stamps, etc. These items
are treated as expenditure in the year in which they are purchased
even though they are assets in nature. The stationery is valued at cost
and not on the principle of cost or market price, whichever is less. The
use of accounting conventions makes financial statements comparable,
simple and realistic.
3. Postulates: Financial statements are prepared on certain basic
assumptions (pre-requisites) known as postulates such as going
concern postulate, money measurement postulate, realisation
postulate, etc. Going concern postulate assumes that the enterprise is
treated as a going concern and exists for a longer period of time. So the
assets are shown on historical cost basis. Money measurement
postulate assumes that the value of money will remain the same in
different periods. Though there is drastic change in purchasing power
of money, the assets purchased at different times will be shown at
Rationalised 2023-24
146 Accountancy : Company Accounts and Analysis of Financial Statements
the amount paid for them. While, preparing statement of profit and
loss the revenue is included in the sales of the year in which the sale
was undertaken even though the sale price may be received over a
number of years. The assumption is known as realisation postulate.
4. Personal Judgements: Under more than one circumstance, facts and
figures presented through financial statements are based on personal
opinion, estimates and judgements. The depreciation is provided taking
into consideration the useful economic life of fixed assets. Provisions
for doubtful debts are made on estimates and personal judgements.
In valuing inventory, cost or market value, whichever is less is being
followed. While deciding either cost of inventory or market value of
inventory, many personal judgements are to be made based on certain
considerations. Personal opinion, judgements and estimates are made
while preparing the financial statements to avoid any possibility of
over statement of assets and liabilities, income and expenditure,
keeping in mind the convention of conservatism.
Thus, financial statements are the summarised reports of recorded facts
and are prepared the following accounting concepts, conventions, accounting
policies, accounting standards and requirements of Law.
3.3 Objectives of Financial Statements
Financial statements are the basic sources of information to the shareholders
and other external parties for understanding the profitability and financial
position of any business concern. They provide information about the results of
the business concern during a specified period of time in terms of assets and
liabilities, which provide the basis for taking decisions. Thus, the primary
objective of financial statements is to assist the users in their decision-making.
The specific objectives include the following:
1. To provide information about economic resources and obligations of
a business: They are prepared to provide adequate, reliable and
periodical information about economic resources and obligations of a
business firm to investors and other external parties who have limited
authority, ability or resources to obtain information.
2. To provide information about the earning capacity of the business:
They are to provide useful financial information which can gainfully
be utilised to predict, compare and evaluate the business firm’s earning
capacity.
3. To provide information about cash flows: They are to provide
information useful to investors and creditors for predicting, comparing
and evaluating, potential cash flows in terms of amount, timing and
related uncertainties.
Rationalised 2023-24
147 Financial Statements of a Company
4. To judge effectiveness of management: They supply information useful
for judging management’s ability to utilise the resources of a business
effectively.
5. Information about activities of business affecting the society: They
have to report the activities of the business organisation affecting the
society, which can be determined and described or measured and which
are important in its social environment.
6. Disclosing accounting policies: These reports have to provide the
significant policies, concepts followed in the process of accounting and
changes taken up in them during the year to understand these
statements in a better way.
3.4 Types of Financial Statements
The financial statements generally include two statements: balance sheet and
statement of profit and loss which are required for external reporting and also
for internal needs of the management like planning, decision-making and
control. Apart from these, there is also a need to know about movements of
funds and changes in the financial position of the company. For this purpose,
a cash flow statement is prepard.
Every company registered under The Companies Act 2013 shall prepare
its balance sheet, statement of profit and loss and notes to account thereto in
accordance with the manner prescribed in the revised Schedule III to the
Companies Act, 2013 to harmonise the disclosure requirement with the
accounting standards and to converge with new reforms.
Balance Sheet as at 31st March, 20.....
Particulars Note No. Figure as Figure as
at the end at the end
of Current of Previous
reporting reporting
period period
I. EQUITY AND LIABILITIES
1) Shareholder’s Funds
(a) Share Capital
(b) Reserves and Surplus
(c) Money received against share warrants
2) Share Application money pending allotment
Rationalised 2023-24
Page 5


144 Accountancy : Company Accounts and Analysis of Financial Statements
H
aving understood how a company raises its
capital, we have to learn the nature, objectives
and types of financial statements it has to prepare
including their contents, format, uses and
limitations. The financial statements are the end
products of accounting process. They are prepared
following accounting policies consistently
accounting standards prescribed in the Companies
Act and accounting concepts, principles,
procedures and also the legal environment in which
the business organisations operate. These
statements are the outcome of the summarising
process of accounting and are, therefore, the
sources of information on the basis of which
conclusions are drawn about the profitability and
the financial position of a company. Hence, they
need to be arranged in a proper form with suitable
contents so that the shareholders and other users
of financial statements can easily understand and
use them in their economic decisions in a
meaningful way.
3.1 Meaning of Financial Statements
Financial statements are the basic and formal
annual reports through which the corporate
management communicates financial information
to its owners and various other external parties
which include investors, tax authorities,
government, employees, etc. These refer to: the
balance sheet (position statement) as at the end of
accounting period, the statement of profit and loss
of a company and the cash flow statement
Financial Statements of a Company 3
LEARNING OBJECTIVES
After studying this chapter ,
you will be able to :
• explain the nature and
objectives of financial
statements of a
company;
• describe the form and
content of Statement of
Profit and Loss of a
company as per
schedule III;
• describe the form and
content of balance sheet
of a company as per
schedule III;
• explain the significance
and limitations of
financial statements;
and
• prepare the financial
statements.
Rationalised 2023-24
145 Financial Statements of a Company
3.2 Nature of Financial Statements
The chronologically recorded facts about events expressed in monetary terms
for a defined period of time are the basis for the preparation of periodical financial
statements which reveal the financial position as on a date and the financial
results obtained during a period. The American Institute of Certified Public
Accountants states the nature of financial statements as, “the statements
prepared for the purpose of presenting a periodical review of report on progress
by the management and deal with the status of investment in the business and
the results achieved during the period under review. They reflect a combination
of recorded facts, accounting principles and personal judgements”.
The following points explain the nature of financial statements:
1. Recorded Facts: Financial statements are prepared on the basis of
facts in the form of cost data recorded in accounting books. The original
cost or historical cost is the basis of recording transactions. The figures
of various accounts such as cash in hand, cash at bank, trade
receivables, fixed assets, etc., are taken as per the figures recorded in
the accounting books. The assets purchased at different times and at
different prices are put together and shown at costs. As these are not
based on market prices, the financial statements do not show current
financial condition of the concern.
2. Accounting Conventions: Certain accounting conventions are followed
while preparing financial statements. The convention of valuing
inventory at cost or market price, whichever is lower, is followed. The
valuing of assets at cost less depreciation principle for balance sheet
purposes is followed. The convention of materiality is followed in dealing
with small items like pencils, pens, postage stamps, etc. These items
are treated as expenditure in the year in which they are purchased
even though they are assets in nature. The stationery is valued at cost
and not on the principle of cost or market price, whichever is less. The
use of accounting conventions makes financial statements comparable,
simple and realistic.
3. Postulates: Financial statements are prepared on certain basic
assumptions (pre-requisites) known as postulates such as going
concern postulate, money measurement postulate, realisation
postulate, etc. Going concern postulate assumes that the enterprise is
treated as a going concern and exists for a longer period of time. So the
assets are shown on historical cost basis. Money measurement
postulate assumes that the value of money will remain the same in
different periods. Though there is drastic change in purchasing power
of money, the assets purchased at different times will be shown at
Rationalised 2023-24
146 Accountancy : Company Accounts and Analysis of Financial Statements
the amount paid for them. While, preparing statement of profit and
loss the revenue is included in the sales of the year in which the sale
was undertaken even though the sale price may be received over a
number of years. The assumption is known as realisation postulate.
4. Personal Judgements: Under more than one circumstance, facts and
figures presented through financial statements are based on personal
opinion, estimates and judgements. The depreciation is provided taking
into consideration the useful economic life of fixed assets. Provisions
for doubtful debts are made on estimates and personal judgements.
In valuing inventory, cost or market value, whichever is less is being
followed. While deciding either cost of inventory or market value of
inventory, many personal judgements are to be made based on certain
considerations. Personal opinion, judgements and estimates are made
while preparing the financial statements to avoid any possibility of
over statement of assets and liabilities, income and expenditure,
keeping in mind the convention of conservatism.
Thus, financial statements are the summarised reports of recorded facts
and are prepared the following accounting concepts, conventions, accounting
policies, accounting standards and requirements of Law.
3.3 Objectives of Financial Statements
Financial statements are the basic sources of information to the shareholders
and other external parties for understanding the profitability and financial
position of any business concern. They provide information about the results of
the business concern during a specified period of time in terms of assets and
liabilities, which provide the basis for taking decisions. Thus, the primary
objective of financial statements is to assist the users in their decision-making.
The specific objectives include the following:
1. To provide information about economic resources and obligations of
a business: They are prepared to provide adequate, reliable and
periodical information about economic resources and obligations of a
business firm to investors and other external parties who have limited
authority, ability or resources to obtain information.
2. To provide information about the earning capacity of the business:
They are to provide useful financial information which can gainfully
be utilised to predict, compare and evaluate the business firm’s earning
capacity.
3. To provide information about cash flows: They are to provide
information useful to investors and creditors for predicting, comparing
and evaluating, potential cash flows in terms of amount, timing and
related uncertainties.
Rationalised 2023-24
147 Financial Statements of a Company
4. To judge effectiveness of management: They supply information useful
for judging management’s ability to utilise the resources of a business
effectively.
5. Information about activities of business affecting the society: They
have to report the activities of the business organisation affecting the
society, which can be determined and described or measured and which
are important in its social environment.
6. Disclosing accounting policies: These reports have to provide the
significant policies, concepts followed in the process of accounting and
changes taken up in them during the year to understand these
statements in a better way.
3.4 Types of Financial Statements
The financial statements generally include two statements: balance sheet and
statement of profit and loss which are required for external reporting and also
for internal needs of the management like planning, decision-making and
control. Apart from these, there is also a need to know about movements of
funds and changes in the financial position of the company. For this purpose,
a cash flow statement is prepard.
Every company registered under The Companies Act 2013 shall prepare
its balance sheet, statement of profit and loss and notes to account thereto in
accordance with the manner prescribed in the revised Schedule III to the
Companies Act, 2013 to harmonise the disclosure requirement with the
accounting standards and to converge with new reforms.
Balance Sheet as at 31st March, 20.....
Particulars Note No. Figure as Figure as
at the end at the end
of Current of Previous
reporting reporting
period period
I. EQUITY AND LIABILITIES
1) Shareholder’s Funds
(a) Share Capital
(b) Reserves and Surplus
(c) Money received against share warrants
2) Share Application money pending allotment
Rationalised 2023-24
148 Accountancy : Company Accounts and Analysis of Financial Statements
3) Non-current Liabilities
(a) Long term borrowings
(b) Deferred tax liabilities (net)
(c) Other long term liabilities
(d) Long term provisions
4) Current Liabilities
(a) Short-term borrowings
(b) Trade payables
(c) Other current liabilities
(d) Short-term provisions
Total
II.ASSETS
1) Non-Current Assets
(a) Fixed assets
(i) Tangible assets
(ii) Intangible assets
(iii) Capital work-in-progress
(iv) Intangible assets under development
(b) Non-current investments
(c) Deferred tax assets (net)
(d) Long-term loans and advances
(e) Other non-current assets
2) Current Assets
(a) Current investments
(b) Inventories
(c) Trade receivables
(d) Cash and cash equivalents
(e) Short term loans and advances
(f) Other current assets
Total
See accompanying notes to the financial statements
NOTES:
Exhibit. 3.1: Form of Balance Sheet
Important Features of Presentation
1. It applies to all Indian companies preparing financial statement as per
Schedule III to the Comapnies Act, 2013.
2. It does not apply to (i) Insurance or Banking Company, (ii) Company
for  which a form of balance sheet or income statement is specified
under any other Act.
3. Accounting standards shall prevail over Schedule III of the Companies
Act, 2013.
4. Disclosure on the face of the financial statements or in the notes are
essential and mandatory.
Rationalised 2023-24
Read More
41 videos|106 docs|56 tests

FAQs on NCERT Textbook - Financial Statements of a Company - Accountancy Class 12 - Commerce

1. What are financial statements?
Ans. Financial statements are the formal records of a company's financial activities, providing a summary of its financial position, performance, and cash flows. These statements include the balance sheet, income statement, and cash flow statement, which are prepared at the end of an accounting period.
2. Why are financial statements important for a company?
Ans. Financial statements are crucial for a company as they provide valuable information about its financial health and performance. These statements help stakeholders, such as investors, creditors, and management, in assessing the company's profitability, liquidity, solvency, and overall financial stability. They also aid in making informed business decisions and evaluating the company's financial performance over time.
3. What is the purpose of a balance sheet in financial statements?
Ans. The balance sheet is a financial statement that presents a snapshot of a company's financial position at a specific point in time. It provides information about the company's assets, liabilities, and shareholders' equity. The balance sheet helps in assessing the company's financial strength, liquidity, and ability to meet its obligations. It also aids in evaluating the company's capital structure and determining its net worth.
4. How does an income statement contribute to financial statements?
Ans. An income statement, also known as a profit and loss statement, reports a company's revenues, expenses, gains, and losses during a specific period. It shows the company's net income or net loss by deducting expenses from revenues. The income statement helps in assessing the company's profitability, efficiency, and ability to generate income. It also aids in analyzing the company's revenue sources, cost structure, and overall financial performance.
5. What is the significance of a cash flow statement in financial statements?
Ans. A cash flow statement provides information about the cash inflows and outflows of a company during a specific period. It categorizes the company's cash flows into operating, investing, and financing activities. The cash flow statement helps in evaluating the company's liquidity, cash management, and ability to generate cash from its core operations. It also aids in assessing the company's ability to meet its short-term and long-term financial obligations.
41 videos|106 docs|56 tests
Download as PDF
Explore Courses for Commerce exam
Signup for Free!
Signup to see your scores go up within 7 days! Learn & Practice with 1000+ FREE Notes, Videos & Tests.
10M+ students study on EduRev
Download the FREE EduRev App
Track your progress, build streaks, highlight & save important lessons and more!
Related Searches

Free

,

study material

,

MCQs

,

video lectures

,

Summary

,

Viva Questions

,

ppt

,

practice quizzes

,

pdf

,

past year papers

,

shortcuts and tricks

,

Sample Paper

,

mock tests for examination

,

Extra Questions

,

Objective type Questions

,

Previous Year Questions with Solutions

,

NCERT Textbook - Financial Statements of a Company | Accountancy Class 12 - Commerce

,

Exam

,

NCERT Textbook - Financial Statements of a Company | Accountancy Class 12 - Commerce

,

NCERT Textbook - Financial Statements of a Company | Accountancy Class 12 - Commerce

,

Important questions

,

Semester Notes

;