Financial statements are the end products of the accounting process. They provide information about the profitability & the financial position of a business. Here are the financial statements of a company class 12 notes.
Topics Discussed
Objectives of Preparing Financial Statements
- To present a true & fair view of the business’s financial performance (i.e. Profit/Loss).
- To present a true & fair view of the business’s financial position (i.e. Assets/Liabilities).
Format of Balance Sheet
| Particulars | Note No. | Current Reporting Period | Previous Reporting Period |
| EQUITY & LIABILITIES 1. Shareholder’s Funds a) Share Capital b) Reserves and Surplus c) Money Received against Share Warrants 2. Share Application Money Pending Allotment 3. Non-Current Liabilities a) Long Term Borrowing b) Deferred Tax Liabilities 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 | |||
| ASSETS 1. Non-Current Assets a) Fixed Assets (i) Tangible Assets (ii) Intangible Assets (iii) Capital Work in Progress b) Non-Current Investments c) Deferred Tax Assets d) Long Term Loans & Advances e) Other Non-Current Assets 2. Current Assets a) Current Investments b) Inventories c) Trade Receivables d) Cash & Cash Equivalents e) Short Term Loans & Advances f) Other Current Assets TOTAL |
Disclosure of share capital in the balance sheet is limited to the following:
| 1. Share Capital Authorized Capital x shares of Rs. x each Issued Capital x shares of Rs. x each Subscribed Capital Subscribed & fully paid up x shares of Rs. x each Subscribed but not fully paid up x shares of Rs. x each called up Less: Calls in arrears | xx |
Format of Statement of P/L
| Particulars | Note No. | Current Period(Rs.) | Previous Period(Rs.) |
| 1. Revenue From Operations 2. Other Income 3. Total Revenue (1+2) 4. Expenses Cost of materials consume Changes in Inventories Finance Cost Employee benefit expenses Other expenses Total Expenses 5. Profit before Tax 6. Tax 7. Profit after Tax |
Revenue from Operations
Revenue from operations means revenue earned by the company from its operating activities i.e. activities carried on by the company to earn profit.
It is net sales (Sales less sales return) for a manufacturing company or trading company, fee earned by a service company, and interest and dividend earned by a financial company.
Other Income
A company, besides earning revenue from operations, may earn income from other sources i.e. the sources that are not its business activities. These incomes are shown as other income in the statement of profit & loss.
Thus, other income means income earned by a company from its non-operating activities. Examples of other income are cash discounts received, gain(profit) on the sale of property, plant and equipment, etc.
Cost of Materials Consumed
The cost of materials consumed is the first entry or line in the ‘expenses’ part of the statement of Profit & Loss. The term ‘Materials’ means raw materials and other materials used in the manufacturing of goods.
The cost of materials consumed means the cost of raw materials and other materials consumed in the manufacturing of goods. Thus, it is, opening inventory(Stock) of materials+Purchases of materials-Closing inventory(stock) of materials.
Purchases of Stock-in-Trade
Purchases of stock-in-trade means goods purchased for reselling. If the company carries out further processing on the goods purchased, they do not remain stock in trade but become part of the cost of materials consumed.
For example, if a company purchases paper for resale, it will be shown as the purchase of stock in trade. But if the paper is purchased for manufacturing copies, it will be shown under ‘Cost of materials consumed’.
Accounting Ratios All Formulas Class 12
Financial Statement Analysis
Financial Statement Analysis is largely a study of relationships among the various financial factors in a business as disclosed by a single set of statements & a study of trends of these factors as shown in a series of statements.
Methods of Financial Analysis
There are two methods of financial analysis:
1) Horizontal Analysis
2) Vertical Analysis
Horizontal Analysis
When financial statements for several years are analyzed, the analysis is called horizontal analysis. Such analysis is mostly in the form of comparative financial statements.
Vertical Analysis
When financial statements for a single year are analyzed, the analysis is called vertical analysis. The items in the financial statement are expressed as a percentage of the total & the total is taken as equivalent to 100. Statements containing such analysis are termed common-size statements.