University School of Business

DEPARTMENT - MBA
Master of Business Administration
Financial Reporting and Analysis 22BAT- 602
Chapter: 1.1

Faculty Name: Ms. Reepu

(Assistant Professor)
1.1 UNDERSTANDING
DISCOVER . LEARN . EMPOWER
FINANCIAL STATEMENT
 UNDERSTANDING
FINANCIAL
STATEMENT
Course Outcome
CO1 To understand the format and content of the three basic financial statements
CO2 To integrate the information obtained from financial statements for assessing the
financial performance of a business organization
Will be covered in this
lecture
CO3 To examine the financial stability and growth of business organizations using financial
statement analysis techniques

CO4 To assess the quality of financial reports after detecting the manipulations in the
financial statements

CO5 To facilitate decision making on the basis of quality of financial reports

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 Financial Statement

• The basic and formal annual reports through which

• the corporate management communicates financial information to its

owners and

• various other external parties which include investors, tax authorities,

government, employees, etc.
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Poll Question
Have you ever seen these financial statement of any
firm/business?

A) YES
B) NO

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 Objectives of Financial Statement

• Financial Results of the Business

• Financial Position of the Business

• Economic resources and obligations of a business

• Information about cash flows

• Effectiveness of management
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MANUFACTURING ACCOUNT

• Manufacturing concerns which convert raw material into

finished product, is required to prepare manufacturing
account and then prepare trading and profit and loss
account.
• This is necessary because they have to ascertain
Cost of goods manufactured

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SPECIMEN OF MANUFACTURING
ACCOUNT

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Poll Question
• All the expenses in the manufacturing process
A)are summed up to calculate the cost of production
B)are the direct expenses
C)are related to the factory
D)All of the above

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Trading account

• Trading account is prepared for an accounting period to find

the trading results or gross margin of the business i.e.,
• the amount of gross profit the concern has made from
buying and selling during the accounting period.
• The difference between the sales and cost of sales is gross
profit.

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Poll Question
• The purpose of Trading Account is:-
i) to calculate the trading results of the business
ii) to find out the gross margin
iii) to attain the gross profits/gross loss
iv) All of the above

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Profit and loss account/ Income Statement
• Also known as the Income statement,

• is a financial statement that summarizes the revenue and costs incurred

by an organization

• during the financial period

• It is indicative of the financial performance of the company by showing

whether the company has made a profit or incurred losses in that period.

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Profit and Loss Account:
Profit and Loss A/C For the year ending 31st March, 2001
Particulars Amt. Particulars Amt.
To Gross Loss b/d xxx By Gross Profit b/d Xxx
To Administration Expenses Xxx By Dividends Received Xxx
To Selling & Distribution Expenses Xxx By Interest Received Xxx

To Depreciation and Maintenance Xxx By Discount Received Xxx

Expenses
To Financial Expenses Xxx By Commission Received Xxx
To Abnormal Losses xxx By Rent Received Xxx
To Net Profit c/d xxx By Profit on sale of assets Xxx
By Sundry revenue receipts Xxx
By Net Loss c/d xxx

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Poll Question
• Do you know the difference Between Gross
Profit and Net Profit?

A) YES
B) NO

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Income statement
Particulars Notes Amount (this Amount (last
No. year) year)
Revenue/ Net Sales xxx Xxx
Cost of goods sold (Xxx) (Xxx)
Gross Profit Xxx Xxx
Operating Expenses (Xxx) (Xxx)
(Selling & Distribution Expenses
Depreciation and Maintenance Expenses, etc)
Net Operating Profit Xxx Xxx
Add Other Incomes xxx Xxx
Profits Before Interest and Taxes (EBIT/PBIT) xxx Xx
Interest (xxx) (xxx)
Profits Before Tax (EBT/PBT) xxx xxx
Taxes (xxx) (xxx)
NET PROFITS xxx xxx
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Poll Question
• Income Statement is:-
(a) known as Profit and Loss Statement
(b) reports the financial performance of the business
(c) composed of incomes or revenues of the business
(d) All of the above

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BALANCE SHEET
• Lists of assets, liabilities and capital fund on a given date.
• It presents the financial position of a concern as revealed by
the accounting records.
• It reflects the assets owned by the concern and the sources
of funds used in the acquisition of those assets.
• Used to analyze the financial stability and business
performance. 

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The three important sections of any balance sheet are:

•Assets – Anything that has value and owned by a company

•Liabilities – This provides a list of debts a company owes to others
•Capital or Equity- This is the amount invested by the Shareholders

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CLASSIFICATION OF ASSETS AND
LIABILITIES
Fixed assets: acquired and held permanently and used in the business
with the objective of making profits. eg. Land, building, Plant, machinery,
Furniture and fixtures

Current assets: can be realized within an operating cycle of one year to

discharge liabilities. eg. cash, debtors, bank balances, bill receivable and
stock

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Tangible assets: definite physical shape or identity and existence; they
can be seen, felt and have volume such as land, cash, stock etc.
Tangible assets can be both fixed assets and current assets.

Intangible assets: The assets which have no physical shape which

cannot be seen or felt but have value are called intangible assets.
Goodwill, patents, trade marks and licenses are examples of intangible
assets. They are usually classified under fixed assets.

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Liabilities
A liability is an amount which a business firm is ‘liable to pay’ legally.

All the amounts which are claims by outsiders on the assets of the business.

(1)Owner's capital:

•Capital is the amount contributed by the owners of the business.

•In addition to initial capital introduced, proprietors may introduce additional capital and
withdraw some amounts from business over a period of time.

• Owner’s capital is also called ‘net worth’. It consists of capital, profits and interest on
capital subject to reduction of drawings and interest on drawings.

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Long term Liabilities: repayable after specific duration of long period of time .
eg.long term loans and debentures.

Current liabilities: are repayable during the operating cycle of business, usually
within a year.

eg trade creditors, bills payable, outstanding expenses, bank overdraft, taxes

payable and dividends payable.

Contingent liabilities: Contingent liabilities will result into liabilities only if certain
events happen. eg. Bills discounted and endorsed which may be dishonored,
unpaid calls on investments.

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 Form and Content of Balance Sheet
Balance sheet of a company is presented in the form prescribed in (Revised) Schedule VI of the Companies Act, 1956.
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Learning Outcomes
• Three basic types of financial statements
• Format of Profit and Loss Account
• Format of Balance Sheet

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Assessment Model

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 References

•Reference book- Maheshwari S.N, Accounting for Management, Vikas Publishing House, New Delhi,2010
•Reference Website: https://www.accountingtools.com/articles/users-of-financial-statements.html
•https://www.icsi.edu/media/webmodules/student/SUPPLEMENT%20ON%20REVISED%20SCHEDULE%20VI%2030%20APR%2
02013.pdf
•Reference Journal for advance study: Journal of Accountancy (JOA)

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THANK YOU

For queries
Email: reepu.usb@cumail.in