CBSE Class 11 Accountancy Financial Statements Concepts And Illustrations

 “Financial Statements of a company shows its financial position for the current year”

Meaning : The financial statement provide a summary of the accounts of a business enterprise. Financial statement include two statements include two statements :

i) „Trading and Profit and Loss Account‟ or Income Statement‟ (To Know Profit or loss)

ii) Balance Sheet (To know value of assets and liabilities on the closing date of an accounting period) 

Users of Accounting Information :

Internal Users : Management, Employees, Current owners

External Users : Potential Investors Government, Banks/Lenders, Stock Exchange, Suppliers and Trade Creditors, Public.

Capital Nature Items:

Capital Expenditure : Those expenditures which are incurred in acquiring and increasing the value of fixed assets. Ex. 1. Purchase of fixed assets or bringing into existence of fixed assets

2. Expenditure incurred on erection of a fixed asset

3. Payment of goodwill

4. Decrease in long term debts.

5. Capital Receipts : Any receipt from the sale of fixed assets is known as capital receipt.

Revenue Nature items :

Revenue Receipts : Receipts in the business of recuirring nature are called as Revenue receipts ex: rent received, discount received, commission received Revenue Expenditures : Recurring nature of expenditure done in the business which are done in order to earn profit are known as revenue expenditure ex.:

1. Purchase of goods during the year

2. Money spent in acquiring or manufacturing goods like freight, carriage, wages etc. Any expenses for meeting day to day business like wages, salaries, postage etc.

OPERATING PROFIT AND NET PROFIT

After getting Gross Profit from the business. Profit may be divided into two parts :

1 Operating Profit,

2 Net Profit Operating Profit : Operating profit is that profit which is earned through the normal activities of the business. It can be ascertained by deducting aqll operating expenses from the gross profit.

2. Net Profit : Net profit is that profit which is earned after deducting all operating as well as non operating expenses from the Gross Profit.

Trading Account : Trading account is prepared to know the result of manufacturing and trading activities : Ex: Prepare A Trading Account from the following particulars for the year ender March 31, 2007.

                                      Opening Stock               56,250

                                       Purchases                     157500 

                                       Sales                              405000

                                       Wages                            45000 

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