Financial statements are formal records of the financial activities and position of a business, person, or

other entity.

 A balance sheet or statement of financial position, reports on a company's assets, liabilities, and
owners’ equity at a given point in time.

Liabilities Amount Assets Amount

Capital Current Assets
              Net profit       Cash in Hand
              Drawing       Cash at Bank
              Income       Bill received
Current Liabilities       Closing Stock
          Creditor       Accrued income
          Overdraft Non-Current Assets
Non-current Liabilities         Building
            Long term loans       Machinery
               Furniture
Reserves             

 An income statement—or profit and loss report (P&L report), or statement of comprehensive
income, or statement of revenue & expense—reports on a company's income, expenses, and
profits over a stated period. A profit and loss statement provides information on the operation of
the enterprise. These include sales and the various expenses incurred during the stated period.

Income Statement

Revenue
      Merchandise sales                                                                                                                                                             
80,000
        Revenue from training                                                                                                                                                   
20,000
        Total revenue                                                                                                                                                                     
100,000
Expenses
      Procurement                                                                                                                                                                        
40,000
      Wages                                                                                                                                                                                     
30,000
      Interest paid                                                                                                                                                                         
10,000
       Transportation                                                                                                                                                                     
5,000
      Utilities                                                                                                                                                                                   
10,000
      Total expenses                                                                                                                                                                     
95,000                                                                                                                                               
Gains
    Income from van sale                                                                                                                                                         
4,000
Loses
      Consumer lawsuit                                                                                                                                                             
2,000
Net income= revenue + gains -expenses + losses                                                                                             
201,000

 A statement of changes in equity or statement of equity, or statement of retained earnings,

reports on the changes in equity of the company over a stated period.

Particulars Amount
Retained earnings Jan 2017 50,000
Add: Income earned during 2017 30,000
80,000
Less: Dividend Paid the Shareholders 40,000
Reattained Earnings as of Dec 2017 40,0000

 A cash flow statement reports on a company's cash flow activities, particularly its operating,
investing and financing activities over a stated period.

Segment A Segment B Total

Cash flow from
Operating activities 200 120 80
Investing activities 400 130 270
Financial activities 20 30 10
-180 20 -180

 A comprehensive income statement involves those other comprehensive income items which
are not included while determining net income.
                                        Net Income                                                                                                                                                       
          Other Comprehensive income                                                5000          50,000                                           
                    Unrealized gain on available for sales security             4,000                                                             
                    Unrealized loss on held to maturity security                    500           100                                          
                                  Comprehensive Income                                                                  50,100                                                     

b)

BALIK’S INVESTMENT LTD INCOME STATEMENT AS AT 30TH MARCH 2017

Sales:                                                                            1,000,000

Less Purchases:                                                        (400, 000)

Cost of goods sold                                                      600,000

Closing stock                                                              (150,000)

Gross Profit                                                                450,000

Less Other Expenses

Salaries                                                                        120,000

Wages                                                                          80,000

Depreciation                                                                16,000

Total Expenses                                                              (216,000)                 

Net Profit before Tax                                                    234,0000                                       

c)   

Accounting is a set of concepts and techniques that are used to identify, measure, record, classify,
summarize and report financial information of an economic unit to the users of the accounting
information.

ACCOUNTING PROCESS

Identify: The transaction "identified" was the purchase of a printer.

Measure The cost of the printer was "measured" as 5000.

Record:            The transaction was "recorded" in books systematically as 5000.

Classify: The transaction was then moved to the ledger and "classified" with similar transactions.

Summarize:      Here the ledger balance was "summarized" and converted into trial balance and financial
statements accordingly.

Analyze:         Purchase manager "analyzed" the financial statements at year-end.

Interpret The analysis leads to the "interpretation" that the printer was costly and cheaper
alternatives were available.

Communicate: This was "communicated" to the owners as a recommendation for future purchases of
this kind.
d)

Shareholders:

Divorce between ownership and management and broad-based ownership of capital due to
dispersal of shareholdings have made shareholders take more interest in the financial statements with a
view to ascertaining the profitability and financial strength of the company.

Debenture Holders:

The debenture holders are interested in the short-term as well as the long-term solvency
position of the company. They have to get their interest payments periodically and at the end the return
of the principal amount.

Creditors:

Potential suppliers of goods and materials and others doing business with the company are
interested in the liquidity position of the company.

Financial Institutions and Commercial Banks:

These financial institutions are interested in the solvency – short-term as well as long-term – and
profitability position of the company.

Prospective Investors:

Prospective Investors are interested in the future prospects and financial strength of the
company.

Employees and Trade Unions:

Employees and Trade Unions are interested in the profitability position of the company.

Important Customers:

Important Customers who want to make long-standing contract with the company are interested
in its financial strength.

Tax Authorities:
 Tax Authorities are interested in the profits earned by the company.

Government Departments:

Government Departments dealing with the industry in which the company is engaged are
interested in the financial information relating to the company.

Economists and Investments Analysts:

Economists and Investments Analysts are interested in the financial and other information of the
company.

Members of Parliament:

Members of Parliament the Public Accounts Committee and Estimates Committee – are
interested in the financial information of the government companies. SEBI and Stock Exchanges:

SEBI and Stock Exchanges:

SEBI and Stock Exchanges are interested in the prospects and performance of listed companies
with a view to protecting the interests of investors.

Managers:

Managers are interested in knowing through the financial statements the present position and
future prospects of the company. This is mainly to review the company’s progress and position and take
decisions for the future.

Why they require it.

The objective of accounting is to provide information relevant for decision making of the various
user-groups. Preparation of financial statements and communicating to the user-groups is not an end in
itself. They are just means to an end. Users need to process it further for the purpose of decision making.
Financial Statement Analysis would explain the methodologies for analyzing the financial statements
information.