Meaning of Financial statements
· Financial statements are the end projects of accounting process.
· They provide information about the profitability and the financial position of a business.
· These statements include at least two statements:
1. Income Statement or Statement of Profit & Loss
2. Statement of Financial Position or Balance Sheet
Meaning of Income Statement or Statement of Profit & Loss:
It shows the net results of the 3business operations, i.e., net profit or loss during an accounting period.
Meaning of Statement of Financial Position or Balance Sheet:
It shows the nature and amount of assets, liabilities and capital of a business and indicates the financial position of the business at a particular date.
Objectives of Preparing Financial Statements:
(i) To present a true and fair view of the financial performance (i.e. profit/loss) of the business;
(ii) To present a true and fair value of the financial position (i.e. Assets/Equity & Liabilities) of the business.
Characteristics of Financial Statements
(i) Financial statements are related to past period and hence are historical documents.
(ii) They are expressed in terms of money.
(iii) Financial Statements show profitability through Statement of Profit & Loss and financial position through Balance Sheet.