abhishreshthaa
Abhijeet S
Meaning of financial statement
The financial statements are organized summaries of detailed information about the financial position and performance and include income statement and the balance sheet.
The two basic financial statements prepared by the firm for the purpose of external reporting to owners, investors and creditors are:
• Balance sheet
• Profit and loss account
Balance sheet
A balance sheet is a sheet containing the balances of all real and personal accounts, i.e., assets and liabilities of a business. In other words, it is a statement of a list of all the asset and liabilities (including capital) of the business as on a given date usually on the last date of the trading period. It reflects the true picture of the company on a particular date.
Profit and loss account
To prepare profit and loss account, the gross profit or gross loss (as shown by the trading account) has to be first entered in the profit and loss account. If there is a group profit, it has to be entered on the credit side of the profit and loss account. If there is a gross loss, then it has to be entered on the debit side of the profit and loss account.
Then all non trading incomes such as interest received, discount received, and commission received etc have to be entered in the credit side of the profit and loss account.
All indirect expenses such as rent, advertising expenses, discount allowed, etc… are entered in the debit side of the profit and loss account. After that profit and loss account will be balanced. The balance will indicate the net profit or net loss.
The financial statements are organized summaries of detailed information about the financial position and performance and include income statement and the balance sheet.
The two basic financial statements prepared by the firm for the purpose of external reporting to owners, investors and creditors are:
• Balance sheet
• Profit and loss account
Balance sheet
A balance sheet is a sheet containing the balances of all real and personal accounts, i.e., assets and liabilities of a business. In other words, it is a statement of a list of all the asset and liabilities (including capital) of the business as on a given date usually on the last date of the trading period. It reflects the true picture of the company on a particular date.
Profit and loss account
To prepare profit and loss account, the gross profit or gross loss (as shown by the trading account) has to be first entered in the profit and loss account. If there is a group profit, it has to be entered on the credit side of the profit and loss account. If there is a gross loss, then it has to be entered on the debit side of the profit and loss account.
Then all non trading incomes such as interest received, discount received, and commission received etc have to be entered in the credit side of the profit and loss account.
All indirect expenses such as rent, advertising expenses, discount allowed, etc… are entered in the debit side of the profit and loss account. After that profit and loss account will be balanced. The balance will indicate the net profit or net loss.