Accounting is a subject that demands regular practice to achieve perfect equation balance. It also requires a thorough comprehension of the Chapter specified concepts. This helps students solve many questions, including two combined concepts.
Chapter 3 in Accounting, Financial Statements of a Company, explains the generation of statements resulting from the accounting process of summarising and are thus the sources of information from which a company’s profitability and financial status can be derived. The Solutions created by the Extramarks subject experts help students extraordinarily prepare all the NCERT questions in depth and understand the concepts of this Chapter.
NCERT Solutions Class 12 Accountancy Company Accoounts and Analysis of Financial Statements Chapter 3 immensely helps students in their upcoming Board Examinations. In addition to these Solutions, students can use the Extramarks website to access several other study tools. NCERT books, CBSE revision notes, CBSE sample papers, CBSE previous year question papers, and other study materials are available to registered students.
Key Topics Covered In NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 3
Mentioned below is a list of some of the major topics explained in Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 3- Financial Statements of a Company:
| Financial Statements of a Company |
| Nature of Financial Statements |
| Types of Financial Statements |
| Uses and Importance of Financial Statements |
| Objectives of Financial Statements |
| Limitations of Financial Statements |
Let us now take a tour of Extramark’s detailed notes on each sub-topic in NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 3- Financial Statements of a Company.
Financial Statements of a Company
Financial statements are written records that convey a trading concern or entity’s economic plans and conditions. Financial statements for a trading company typically include balance sheets, retained earnings, cash flows, and income statements. However, they may require further clarification based on the accounting foundation. Government businesses, accountants, and other authorities audit these accounts to ensure their accuracy and tax, financing, and investment purposes.
Extramarks NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 3 explains the Financial Statements of a Company in detail.
Nature of Financial Statements
The foundation for outlining general financial statements, which recognise the financial status as a specific date and the financial results achieved throughout a period, is the chronologically documented facts regarding occurrences transmitted in monetary terms for a particular time frame.
The nature of financial statements is dependent on the following factors:
- Recorded facts: To produce financial statements, we must first document certainty in monetary terms. We must explain account data such as cash, trade receivables, fixed assets, etc.
- Accounting conventions: Accounting Standards define certain norms relevant to the process of accounting. These norms must be abided by while preparing the financial statements.
- Postulates: In accounting, postulates are assumptions that we make.
- Personal judgements: In preparing financial statements, personal judgments and views play a significant role. As a result, while calculating depreciation, we must depend on our estimates.
Extramarks provide NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 3, which gives students pointwise point explanations of the Chapter through detailed answers to the NCERT textbook questions. Browse through Extramarks for these handy solutions.
Types of Financial Statements
The financial impacts of transactions on the organisation are reflected in financial statements. Financial statements are prepared by corporate and non-profit organisations alike. It is an essential component of every organisation’s annual report.
An entity is obliged to prepare four different types of financial statements. Extramarks NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 3 presents these statements as follows:
Income Statements:
An organisation’s or business entity’s income statement is a financial statement that includes financial information on three key components:
- Revenues.
- Profit or Loss.
- Costs spent during the accounting period.
The following are the primary components of the income statement:
- Revenues: It refers to the current accounting period’s sales of products and services generated by the company. Both credit sales and cash can be used to generate revenue.
- Profit or Loss: The net income earned by subtracting costs from revenues is profit or loss. If revenues exceeds expenditures, it’s considered a profit, and if expenses exceed revenue, it will result in a loss. will result.
- Expenses: Expenses are the amount to be paid for doing business that an organisation incurs daily. Administrative costs, such as salary and depreciation, are E examples.
- Balance Sheet: The status of assets, liabilities, and equity after an accounting period is shown on a balance sheet. It’s also known as the a statement of financial position. A company’s net value is calculated by subtracting its liabilities from its assets. A balance sheet is the most applicable statement to give the relevant information to users of financial information seeking information on the company’s financial status. A balance sheet’s components include assets, liabilities, and equity.
- Assets: Assets are both legally and commercially held resources of the firm. Assets are divided into two categories: Current and n Non-current. A company’s current assets will be used within the current accounting period. Examples are cash, marketable securities, cash equivalents, and other investments. Non-current assets cannot be fully utilised in the current accounting period and must be spread out across many accounting periods. It comprises intangible and tangible assets like machinery, buildings, land, computers, and cars.
- Liability: Company liabilities are the commitments it owes to other firms or individuals. It covers things like interest, loans, and taxes. Current liabilities and non-current liabilities are the two types of obligations. Current obligations are set due within a year, and the organisation must pay the dues only during that accounting year. Non-current liabilities, on the other side, are debts that have a payback period greater than twelve months.
- Equity: The difference between assets and liabilities is referred to as equity. Retained profits and share capital are instances of equity. By subtracting assets from liabilities, equity may be computed.
- Statement of Cash Flow: The cash flow statement shows how money moves throughout a company. Cash inflows and outflows are included. Operating activities, investment activities, and financing activities are the three types of cash flow that may be categorised.
- Notes to Accounts: Notes to accounts, also known as notes to financial statements, are supplementary documents that encompass a company’s final arrangements. According to the law, notes must be supplied that include information on reserves, provisions, inventories, depreciation, share capital, etc.
The notes to accounts assist users of accounting information in comprehending the company’s present financial condition and forecasting its future performance. It assists auditors in determining if accounting policies are effectively executed and represented in financial statements while auditing financial statements.
Uses and Importance of Financial Statements
Extramarks NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 3 presents the uses of financial statement applications as stated below:
- Determine the financial position of the business: The primary purpose of financial statements is to convey information about a company’s financial situation at a given time. Various stakeholders utilise this data to make critical business choices.
- To obtain credit: Financial statements give potential lenders a picture of the firm. This information may be utilised to grant extra credit for corporate development or limit credit to begin the recovery process.
- Help investors in decision making: Financial statements provide all of the information potential investors need to determine how much they wish to put into the company. It can also assist investors in deciding on the price per share they want to invest in.
- Helps in policy-making: The financial statements assist the government in determining taxation and regulatory policies depending on how the business is conducted.
- Useful for stock traders: Financial statements provide stock traders with information about their financial status, allowing them to alter their prices accordingly.
Importance of Financial Statements:
The importance of financial statements is evident in their ability to persuade a variety of stakeholders, creditors, the general public, management, and others.
- Importance to Management: The increasing complexity of factors impacting commercial activities necessitates scientific and strategic access in the administration of modern trade concerns. The management team needs current, clear, and thorough financial data for the intentions. Financial statements let management understand the company counterpart’s growth, prospects, and place in the industry.
- Importance to Shareholders: In the case of businesses, management is separated from control. Shareholders are unable to participate in day-to-day operations. However, the results of these efforts should be presented to shareholders in the form of financial statements at the annual general meeting.
Objectives of Financial Statements:
The primary purpose of financial statements is to aid end-users in making decisions. The following are some of the objectives:
- Financial accounts depict the exact situation of an organisation’s liabilities and economic assets. External stakeholders, such as governments and investors, do not have access to this information.
- They aid in predicting the company’s capacity to produce profits. This information can help investors and shareholders make conscious financial decisions.
- The financial accounts of a company showcase how effective its management is, what is it’s. Profitability, and how effectively this business functions.
- They help readers understand the accounting strategies used in these financial statements. This makes it much easier to comprehend the declarations generally.
- These financial statements also involve information on the company’s cash flows. Creditors and investors may use this information to forecast the company’s financial needs and liquidity.
- Finally, financial accounts reveal how enterprises affect society. This is because the enterprise’s external factors impact its operations.
Limitations of Financial Statements:
Financial statements have limits that a user should know before relying on them heavily. Extramarks NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 3 explains Financial statements include the following limitations:
- Dependence on historical costs: The cost of transactions is recorded. This is important to know when looking at a balance sheet since the values of assets and liabilities might change over time. Some items, such as marketable securities, are customised to reflect changes in their market prices, but others, such as fixed assets, remain unchanged. As a result, the balance sheet may be unclear if a significant portion of the amount is based on initial costs.
- Biased: Financial statements result from documented facts, accounting concepts and conventions used, and accountants’ judgements in various settings. As a result, the results might be have biaseds, and the financial situation depicted in financial statements may not be realistic.
- Significant data missing: In many cases, T the balance statement does not show information about market losses and contract terminations, which substantially impact the firm.
- Aggregate Information: The average data in financial statements is not explained. As a result, they may not be able to help people make judgments.
- Assets may not realise: Some assets could not realise their reported worth if the firm is liquidated. In the balance sheet, assets are displayed at a somewhat discounted cost.
NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 3 Accounting for Share Capital NCERT Solutions
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