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FINANCIAL STATEMENTS
• UGC NET COMMERCE/MANAGEMENT
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ACCOUNTING FOR MANAGEMENT DECISIONS
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DR SHASHI AGAGRWAL
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MEANING AND DEFINITIONS
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MAY REFER TO ANY FORMAL AND ORIGINAL STATEMENTS WHICH DISCLOSE FINANCIAL
INFORMATION TO ANY BUSINESS CONCERN. OUTCOME OF SUMMARISING PROCESS OF
ACCOUNTING. ALSO CALLED FINANCIAL REPORTS
• THE FINANCIAL STATEMENTS ARE PREPARED ON THE BASIS OF RECORDED FACTS.
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RECORDED FACTS ARE WHICH CAN BE EXPRESSED IN MONEY TERMS. STATEMENTS ARE
PREPARED FOR A PARTICULAR PERIOD
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THE AMERICAN INSTITUTE OF CERTIFIED
ACCOUNTANTS STATES THE NATURE OF FINANCIAL STATEMENTS AS FINANCIAL STATEMENTS
ARE PREPARED FOR THE PURPOSE OF PRESENTING A PERIODICAL VIEW OF REPORT ON THE
PROGRESS BY THE MANAGEMENT DEALS WITH STATUS OF INVESTMENTS IN THE BUSINESS AND
RESULTS ACHIVED DURING THE PEIROD UNDER REVIEW.
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MAY REFER TO ANY FORMAL AND ORIGINAL STATEMENTS WHICH DISCLOSE FINANCIAL
INFORMATION TO ANY BUSINESS CONCERN. OUTCOME OF SUMMARISING PROCESS OF
ACCOUNTING. ALSO CALLED FINANCIAL REPORTS
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HIMTON JOHAR:- A FINANCIAL STATEMENT IS AN ORGANIZED COLLECTION OF DATA
ACCORDING TO LOGICAL AND CONSISTENT ACCOUNTING PROCEDURES.
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MYERS ,” FINANCIAL STATEMENT ANALYSIS IS LARGELY STUDY OF RELATIONSHIP AMONG
THE VARIOUS FINANCIAL FACTORS IN A BUSINESS AS DISCLOSED BY A SINGLE SET OF
STATEMENTS AND A STUDY OF THE TRENDS OF THESE FACTORS AS SHOWN IN SERIES OF
STATEMENTS.
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ACCORDING TO THE AMERICAN INSTITUTE OF CERTIFIED ACCOUNTANTS,” FINANCIAL
STATEMENTS REFLECT A COMBINATION OF RECORDED FACTS,ACCOUNTING CONVENTIONS AND
PERSONAL JUDGEMENTS.
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IN RELATION TO A COMPANY” FINANCIAL STATEMENTS MEANS THE COLLECTIVE RECORD
OF THE BALANCE SHEET.STATEMENT OF PROFIT AND LOSS ACCOUNT,CASH FLOWS
STATEMENTS.CASH FLOW STATEMENTS.STATEMENTS OF CHNAGES IN EQUITY ( IF APPLCABLE) AND AN EXPLANANTORY
NOTES ANNEXED TO THE FINANCIAL STATEMENTS
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STATEMENTS HAVE TO PREPARED AT THE END OF THE FINANCIAL YEAR AND MAY BE KEPT
IN ELECTRONIC FORM COMPLETE AND UNLATERED
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CASH FLOW STATEMENTS ARE NOT MANDATORY FOR SMALL COMPANIES,ONE PERSON
COMPANY AND DORMANT COMPANIES.
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NATURE OF FINANCIAL STATEMENTS
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RECORDED FACTS: DATA TAKEN OUT FROM ACCOUNTING RECORDS. RECORDS ARE MAINTAINED ON
THE BASIS OF ACTUAL COST DATA
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ACCOUNTING CONVENTIONS : CONVENTION OF MATERIALITY,CONVENTION OF
VALUING ASSETS LESS DEPRECIATION. THE USE OF CONVENTIONS MAKES ACCOUNTING
CONVENTIONS AND MAKES FINANCIAL STATEMENTS COMPARABLE SIMPLE AND REALISTIC
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POSTULATES : ASSUMPTINS :
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GOING CONCERN
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VALUE OF MONEY WILL REMAIN SAME
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REVENUE IS TREATED IN THE YEAR IN WHICH THE SALE WAS UNDERTAKEN EVEN THOUGH
SALE PRICE MAY BE RECIVED FOR MANY YEARS
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PERSONAL JUDGEMENTS :
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APPLYING THE COST OR MARKET VALUE WHICHEVER IS LESS TO INVENTORY VALUATION
THE ACCOUNTANT WILL HAVE TO USE HIS JUDGEMENTS IN COMPUTING THE COST IN A
PARTICUALR CASE
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SELECTION OF DEPRECIATION METHOD
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NATURE
1.
FINANCIAL STATEMENTS ARE THE REPORTS PRODUCED
BY THE ACCOUNTING SYSTEM
2.
SUMMARISED REPORTS
3.
PREPARED AT THE END OF THE ACCOUNTING YEAR
4.
BASED ON RECOREDED FACTS
5.
PER ACCOUNTING CONVENTIONS PRACTICES
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OBJECTIVES
1.
TO PROVIDE RELIABLE FINANCIAL INFORMATION ABOUT ECONOMIC RESOURCES AND
OBLIGATIONS
2.
CHANGES IN THE ECONOMIC RESOURCES AND OBLIGATIONS
3.
PROVIDE FINANCIAL INFORMATION THAT ASSISTS IN ESTIMATING THE EARNING
POTENTIAL OF BUSINESS
4.
TO DISCLOSE THE TO THE EXTENT POSSIBLE OTHER INFORMATION THAT ASSISTS IN
EARNING POTENTIALS OF THE BUSINESS.
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CHARACTERSTICS OF IDEAL FINANCIAL STATMENTS
1.
ANALYTICAL PRESENTATION
2.
AUTHENTICITY
3.
COMPLIANCE WITH LAW
4.
ACCURACY AND FREEDOM FROM BIAS
5.
PROMPTNESS
6.
CONFORM TO GENERALLY ACCEPTED PRINCIPLES
7.
CONSISTENCY
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DIFFERENT TYPES OF FINANCIAL STATMENTS
q BALANCE SHEET:- WHICH
SHOWS THE FINANCIAL POSITION OF A
BUSINESS UNIT AS ON PARTICULAR DATE. COMPRISE OF A LIST OF ASSETS,LIABILITIES
AND CAPITAL FUND
q HOWARD,” THE BALANCE SHEET IS A STATEMENT WHICH
REPORTS THE VALUE OWNED BY THE ENTERPRISE AND THE CLAIMS OF THE CREDITORS AND
OWNERS AGAINST THESE PROPERTIES.
q BALANCE SHEET ASSETS ARE LISTED ON THE RIGHT
HAND SIDE AND THE LIABILITIES AND OWNER’S EQUITY ON THE LEFT.
q TOTAL ASSETS =TOTAL LIABILITIES + OWNER’S
EQUITY
q OWNER’S EQUITY= TOTAL ASSETS-TOTAL LIABILITIES
q STATEMENTS OF CHANGES IN OWNER’S EQUITY OR
RETIANED EARNINGS : OWNER’S
EQUITY REFERS TO THE CLAIMS OF THE OWNERS OF THE BUSINESS ( SHAREHOLDERS )
AGAINST THE ASSETS OF THE FIRM
q CONSISTS OF TWO ELEMENTS :
1.
PAID UP SHARE CAPITAL : THE INITIAL AMOUNT OF FUNDS INVESTED BY THE
SHAREHOLDERS
2.
RETAINED EARNING/RESERVE/SURPLUS REPRESENTING UNDISTRIBUTED PROFITS
qA STATEMENTS OF RETAINED EARNING IS ALSO KNOWN
AS PROFIT AND LOSS APORPIRATION ACCOUNT OF INCOME DISPOSAL
q THE BAALNCE IN THIS ACCOUNT WILL SHOW THE
AMOUNT OF PROFIT RETAINED IN HAND AND CARRIED FORWARD. THIS ACCOUNT WILL NOT
HAVE DEBIT BALANCE
q STATEMENT OF PROFIT AND LOSS ACCOUNT/INCOME
STATEMENT :- SUMMARY OF REVENUES,EXPENSES AND NET INCOME OR
NET LOSS OF FIRM. IT SHOWS THE EXPENSES INCURRED ON PRODUCTION,SALE AND DISTRIBUTION
AND SALES REVENUE AND THE NET PROFIT OR LOSS FOR A PARTICULAR PERIOD.
q FUND FLOW STATEMENT:-THE FUND FLOW STATEMENT DESCRIBES THE SOURCES FROM
WHICH FUNDS WERE DERIVED AND THE USE TO WHICH THESE FUNDS ARE PUT.
q FOULKE,” A STATEMENT OF SOURCES AND APPLICATION
OF FUNDS IS A TEHNICAL DEVICE DESIGNED TO ANALYSE THE CHANGES IN THE
FINANCIALCONDITIONS OF A BUSINESS ENTERPRISE BETWEEN TWO DATES.
qCASH FLOW STATEMENT:-DEALS WITH THE INFLOW AND OUTFLOW OF CASH
BETWEEN TWO PERIODS. SOURCES OF CASH INFLOW AND USES OF CASH
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FINANCIAL STATEMENTS-SCHEDULE III COMPANIES ACT
2013
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SECTION 129 OF THE COMPANIES ACT 2013 PROVIDES FOR THE PREPRATION OF
FINANCIAL STATEMENTS
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2( 40) TO INCLUDE BALANCE SHEETS,PROFIT AND LOSS ACCOUNT/INCOME AND
EXPENDITURE ACCOUNT.CASH FLOW STATEMENTS AND CHANGES IN EQUITY AND ANY
EXPLANATORY NOTES ANNEXED TO THE ABOVE
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NEW SECTION 129 CORRESPOND TO THE EXISTING SECTION 210, FINANCIAL STATEMENTS
GIVE A TRUE AND FAIR VIEW OF THE STATE OF AFFIARS. COMPLY WITH ACCOUNTING
STANDARDS
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FINANCIAL STATEMTNS WILL BE PREAPRED IN THE FORMS PROVIDED IN SCHEDULE III
OF THE COMPANIES ACT 2013
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129(3) IF THE COMPANY HAS ONE OR MORE SUBSIDARIES WILL HAVE TO PREPARE A
CONSLODIATED FINANCIAL STATEMENTS OF THE COMPANY
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BALANCE SHEET
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BALANCE SHEET IS A SNAPSHOT OF FINANCIAL POSITION OF A COMPANY AT A GIVEN
DATE.
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SCHEDULE III OF PART 1 REQUIRE THE BALANCE SHEET TO BE PREPARED IN THE
PRESCRIBED FORM. THE OBJECTIVE IS TO GIVE ,” TRUE AND FAIR VIEW”
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BOARD APPROVAL
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THE FINANCIAL STATEMENTS INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS HAS
TO BE APPROVED ANS SIGNED AS PRESCRIBED BY THE BOARD OF DIRECTORS
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SIGNED EITHER BY AUTHORIZED CHAIRPERSON OF THE BOARD OR BY ATLEAST 2
DIRECTRS AND APPOINTED COMPANY SECRETARY
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THE BOARD ‘S REPORT AND AUDITOR’S REPORTS ARE TO BE ATTACHED WITH THE
FINANCIAL STATEMENTS BEFORE IT IS ISSUED.
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CHARACTERSTICS OF IDEAL FINANCIAL STATMENTS
- DEPICT TRUE FINANCIAL POSITIONS
- SHOULD BE PRESENTED IN SIMPLE AND
CLEAR WAY TO MAKE THEM UNDERSTANDABLE
- SHOULD BE RELEVENT TO THE OBJECTIVES OF THE ENTEPRISE
- SHOULD BE PREPARED IN SUCH WAY THE IMPORTANT INFORMATION IS UNDERLINED
- SHOULD BE COMPARABLE
- EASY TO MAKE ANALYSIS
- BRIEF
- SHOULD BE PREPARED AND PRESENTED AT THE EARLIES POSSIBLE TIME
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IMPORTANCE
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IMPORTANCE
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LIMITATIONS
1.
INTERIM REPORTS
2.
DO ONT GIVE EXACT POSITION
3.
HISTORICAL COSTS
4.
IMPACT OF NON MONETARY
5.
NO PRECISION
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