INTRODUCTION

The term Financial Statement refers to

statement which accountant prepare at the end of
period of time for a business enterprise. They are :

1. Balance Sheet : In financial accounting, a

balance sheet or statement of financial position
is a summary of a person's or organization's
balances. Assets, liabilities and ownership equity
are listed as of a specific date, such as the end
of its financial year. A balance sheet is often
described as a snapshot of a company's financial
condition. A company balance sheet has three
parts: assets, liabilities and ownership equity.
The main categories of assets are usually listed
first and are followed by the liabilities. The
difference between the assets and the liabilities
is known as equity or the net assets or the net
worth or capital of the company and according
to the accounting equation, net worth must
equal assets minus liabilities.

2. Income Statement : Income statement, also

called profit and loss statement (P&L) and
Statement of Operations, is a company's
financial statement that indicates how the
revenue (money received from the sale of
products and services before expenses are taken
 out, also known as the "top line") is transformed
into the net income (the result after all revenues
and expenses have been accounted for, also
known as the "bottom line"). The purpose of the
income statement is to show managers and
investors whether the company made or lost
money during the period being reported. The
important thing to remember about an income
statement is that it represents a period of time.
This contrasts with the balance sheet, which
represents a single moment in time.

3. Cash flow statement : The cash flow statement is

intended to :

• provide information on a firm's liquidity and solvency

and its ability to change cash flows in future
circumstances
• provide additional information for evaluating changes
in assets, liabilities and equity
• improve the comparability of different firms'
operating performance by eliminating the effects of
different accounting methods
• indicate the amount, timing and probability of future
cash flows
IMPORTANCE OF FINANCIAL STATEMENTS

• Requirement of lenders :
In case of borrowing from banks and financial institutions
they insist the borrowers to furnish financial statements
in order to assess their profitability.

• Guides future course of action :

Financial statements guide the management about the
proper way to expand & prosper indicating in which area
and what extent expansion is possible.

• To understand the future :

Based on projected financial statements the management
will be able to, in a better way, understand the future.

• To exercise control :
The management will be able to exercise better control if
they are clear about the position of the organization.

• Better awareness of present position :

For preparing a financial statement, a good knowledge
about the present position is essential. Thus, in the
process of preparation of financial statement,
management is made aware of the present situation.

• Arithmetic accuracy to future plans :

In case of financial statements everything is put down on
paper in terms of rupees. Thus, it is very important for
control and directive actions.

• Acts as a base for future action :

Financial statements are the base on which the
management acts.
USES OF FINANCIAL STATEMENT
1) It helps to reveal changes in the various items of
balance sheet from the past to present
2) They help to measure the profitability.
3) They provide a concise summary of the firm’s
revenue and expense during the date or service of dates
4) Financial statement report the effect of plan of
operations on the assets, liabilities and capital of the
economy.
CHARACTERISTICS OF FINANACIAL
STATEMENT

They are regarded as indices of an enterprises

performance. As such extreme care should be taken while
preparing those statements. They reflect visible
characteristics like:
1. Internal audience:
They are useful for those who have an interest in
the business. They have to be prepared on the
assumptions that the user is familiar with the
business and the terms used in it.

2. Articulation:
The basic financial statement are inter related
and hence they are said to be articulated. E.G.
Profit and Loss A/c shows either an increase or
decrease in the resources which is reflected in
the B/S.
3. Historical nature:
They generally report what has happened in the
past. They are used as an basis for future by
investors and creditors they are not intended to
provide basis for future and its effect on the B/S.
4. Summarization & Classification:
The volume of business transaction affecting
business operations are so vast that the
summarization and classification of business
items and events alone will enable the reader to
draw useful conclusions from it.
5. Money term:
All the business transactions are quantified and
measured in terms of money. In absence of
these units the measurement of financial
statements will be meaningless.
6. Various valuation method:
The valuation method are not uniform for all the
items found in the B/S.E.G. inventories are
measured at cost or market price which ever is
less, fix assets are measured at cost –
depreciation.
7. Accrual basis:
Most financial statements are prepared on
accrual basis rather than on cash basis i.e.
taking into a/c all income due but not received,
all expenses due but not paid etc.
8. Conservatism:
Wherever and whenever estimates & personal
judgement become Essentialduring the course of
the preparation the estimates should be paced
moderately to avoid any possibility of
overstating the assets and incomes.
PROFORMA OF VERTICAL BALANCE
SHEET:

PARTICULARS
AMOUNT AMOUNT AMOUNT
SOURCES OF FUNDS
I. Share holders fund
1.
a. Share capital
10% preference share capital XX
Equity share capital XX XXX
Less: unpaid calls XX
Add: share forfeited XX XXX
b.

Reserves and Surplus

General reserve XX
Capital reserve XX

c. Profit and loss account XX

Capital redemption reserve XX
Security premium XX XXX

Less: Fictitious assets

2.
a. Preliminary expenses XX
Discount on issue of shares XX XXX XXX

b. NET WORTH XXX

 Loan funds
Secured loans
Debentures or bonds XX
Bank loan XX XXX

II.
Unsecured loans
1.
Other loans XX
Public deposits XX XXX

TOTAL FUNDS XXX

AVAILABLE
2.

3.
a.
APPLICATION OF FUNDS
Fixed assets
XX
Land and building
XX
Plant and machinery
XX
Goodwill
XX
b. Patents
XX
Trademarks
XX
Furniture
XX XXX
Less: depreciation
Investments
Trade investments XX XXX

Working capital
Current assets
Stock XX
Prepaid expenses XX
Outstanding income XX
Sundry debtors XX
Bills receivable XX
Cash/ bank balance XX XXX

Less: current liabilities

Sundry creditors XX
Bank overdraft XX
Bills payable XX
Outstanding expense XX
Income revieved in advance XX XXX

CAPITAL EMPLOYEED XXX

Particulars .
PROFOMA FOR REVENUE Rs. Rs. Rs.
XX
INCOME STATEMENT
1. Gross Sales XX
2. (-) Return of allowance.
3. Net Sales(1-2) XX

4. (-) C.O.G.S
XX
(a) Opening.Stock XX
(+)(b) Purchases(net)
(Gross Less Return)

(c ) Direct Exp. XX
(d) Direct Wages. XX
(e) Depr. Of Mach. XX
(f) Depr Of Factory XX
(-) (g) Closing Stock. XX
Sale Of Scrap XX XXX

Cost Of goods Sold

(a+b+c+d+e+f-g) XX

G/P (3-4) XXX

(+) Operating Income.

Discount On Purchases. XX
Discount Receivable. XX XX
Recovery Of Bad debts XX
XX

(-) Operating Expenses.

(1) Administration Exp. XX

Salary XX
Insurance XX
Office Exp XX
Legal Exp. XX
Audit Fees XX
Depreciation.

(2) Selling & Distribution XX

Exp XX
Commission XX
Advt. XX XX
Salesman Salary.
Distribution Exp.
XX
(3)Finance Exp.
Interest On Debenture XX
XX
THANK
YOU