Financial Statement (Without Adjustments)

  • The Financial Statements provide a summary of the accounts of a business enterprise, the Balance Sheet reflecting the assets, liabilities and capital as on a certain date and the Income Statement showing the result of operations during a certain period.
  • The objective of preparing financial statement is to present true and fair view of financial performance and financial position of the business.
  • Users of financial statements are internal usersandexternal users.
  • Internal users include owners and managers.
  • External users include banks, financial institutions, creditors, public etc.
  • Trading Account is prepared to ascertain the results of the trading activities of the business enterprise. It shows whether the selling of goods purchased or manufactured has earned gross profit or incurred gross loss for the business unit.
  • Gross profit is equal to Sales minus Cost of Goods Sold. It includes sales, opening and closing stocks and direct expenses of the business.
  • Profit and loss account is prepared to know the net profit or net loss of the business. It includes all indirect expenses and incomes. Profit and loss account is prepared to ascertain net profit or net loss.
  • Net Profit is equal to Gross Profit – Indirect Expenses + Indirect Income. Operating profit is the excess of operating revenue over operating expenses.
  • Balance Sheet is a statement prepared to show the financial position of the business summarising its assets and liabilities on a given date.
  • Grouping of assets and liabilities implies putting together items of similar nature under common heading.
  • Balance sheet can be prepared in order of permanency or liquidity.

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