NCERT Class 12 Accountancy Financial Statements of a Company

Read and download NCERT Class 12 Accountancy Financial Statements of a Company in NCERT book for Class 12 Accountancy. You can download latest NCERT eBooks chapter wise in PDF format free from Studiestoday.com. This Accountancy textbook for Class 12 is designed by NCERT and is very useful for students. Please also refer to the NCERT solutions for Class 12 Accountancy to understand the answers of the exercise questions given at the end of this chapter

NCERT Book for Class 12 Accountancy Part 2 Chapter 3 Financial Statements Of a Company

Class 12 Accountancy students should refer to the following NCERT Book Part 2 Chapter 3 Financial Statements Of a Company in Class 12. This NCERT Book for Class 12 Accountancy will be very useful for exams and help you to score good marks

Part 2 Chapter 3 Financial Statements Of a Company NCERT Book Class 12

 

Financial Statements of a Company

Having understood how a company raises its capital, we have to learn the nature, objectives and types of financial statements it has to prepare including their contents, format, uses and limitations. The financial statements are the end products of accounting process. They are prepared following the consistent accounting concepts, principles, procedures and also the legal environment in which the business organisationsoperate. These statements are the outcome of the summarising process of accounting and are, therefore, the sources of information on the basis of which conclusions are drawn about the profitability and the financial position of a company. Hence, they need to be arranged in a proper form with suitable contents so that the shareholders and other users of financial statements can easily understand and use them in their economic decisions in a meaningful way.

3.1 Meaning of Financial Statements

Financial statements are 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. These normally refer to (a) the balance sheet (position statement) as at the end of accounting period, and (b) the profit and loss account (income statement) of a company. Now a days, the cash flow statement is also taken as an integral component of the financial statements of a company.

3.2 Nature of Financial Statements

The chronologically recorded facts about events expressed in monetary terms for a defined period of time are the basis for the preparation of periodical financial statements which reveal the financial position as on a date and the financial results obtained during a period. The American Institute of Certified Public Accountants states the nature of financial statements as, “the statements prepared for the purpose of presenting a periodical review of report on progress by the management and deal with the status of investment in the business and the results achieved during the period under review. They reflect a combination of recorded facts, accounting principles and personal judgements.”

The following points explain the nature of financial statements:

1. Recorded facts: Financial statements are prepared on the basis of facts in the form of cost data recorded in accounting books. The original cost or historical cost is the basis of recording transactions. The figures of various accounts such as cash in hand, cash at bank, bills receivable, sundry debtors, fixed assets, etc. are taken as per the figures recorded in the accounting books. The assets purchased at different times and at different prices are put together and shown at costs. As these are not based on market prices, the financial statements do not show current financial condition of the concern.

2. Accounting Conventions: Certain accounting conventions are followed while preparing financial statements. The convention of valuing inventory at cost or market price, whichever is lower, is followed. The valuing of assets at cost less depreciation principle for balance sheet purposes is followed. The convention of materiality is followed in dealing with small items like pencils, pens, postage stamps, etc. These items are treated as expenditure in the year in which they are purchased even though they are assets in nature. The stationery is valued at cost and not on the principle of cost or market price, whichever is less. The use of accounting conventions makes financial statements comparable, simple and realistic.

3. Postulates: Financial statements are prepared on certain basic assumptions (pre-requisites) known as postulates such as going concern postulate, money measurement postulate, realisationpostulate, etc. Going concern postulate assumes that the enterprise is treated as a going concern and exists for a longer period of time. So the assets are shown on historical cost basis. Money measurement postulate assumes that the value of money will remain the same in different periods. Though there is drastic change in purchasing power of money, the assets purchased at different times will be shown at the amount paid for them. While, preparing profit and loss account the revenue is included in the sales of the year in which the sale was undertaken even though the sale price may be received over a number of years. The assumption is known as realisation postulate.

4. Personal Judgments: Under more than one circumstance, facts and figures presented through financial statements are based on personal opinion, estimates and judgments. The depreciation is provided taking into consideration the useful economic life of fixed assets. Provisions for doubtful debts are made on estimates and personal judgments. In valuing inventory, cost or market value, whichever is less is beingfollowed. While deciding either cost of inventory or market value of inventory many personal judgments are to be made based on certain considerations. Personal opinion, judgments and estimates are made while preparing the financial statements to avoid any possibility of over statement of assets and liabilities, income and expenditure, keeping in mind the convention of conservatism. Thus, financial statements are the summarised reports of recorded facts and are prepared following the accounting concepts, conventions and requirements of Law.

3.3 Objectives of Financial Statements

Financial statements are the basic sources of information to the shareholders and other external parties for understanding the profitability and financial position of any concern. They provide information about the results of the concern during a specified period of time and status of the concern in terms of assets and liabilities, which provide the basis for taking decisions. Thus, the primary objective of financial statements is to assist the users in their decision-making. The specific objectives include the following:

1. To provide information about economic resources and obligations of a business: They are prepared to provide adequate, reliable and periodical information about economic resources and obligations of a business firm to investors and other external parties who have limited authority, ability or resources to obtain information.

2. To provide information about the earning capacity of the business: They are to provide useful financial information which can gainfully be utilised to predict, compare, and evaluate the business firm’s earning capacity.

3. To provide information about cash flows: They are to provide information useful to investors and creditors for predicting, comparing and evaluating, potential cash flows in terms of amount, timing and related uncertainties.

4. To judge effectiveness of management: They supply information useful for judging management’s ability to utilise the resources of a business effectively.

5. Information about activities of business affecting the society: They have to report the activities of the business organisation affecting the society, which can be determined and described or measured and which are important in its social environment.

6. Disclosing accounting policies: These reports have to provide the significant policies, concepts followed in the process of accounting and changes taken up in them during the year to understand these statements in a better way.

 

Please refer to attached file for NCERT Class 12 Accountancy Financial Statements of a Company

Computerised Accounting System Chapter 01 Overview Of Computerised Accounting System
NCERT Class 12 Accountancy Computerised Accounting System Overview
Computerised Accounting System Chapter 02 Spreadsheet
NCERT Class 12 Accountancy Computerised Accounting Spreadsheet
Computerised Accounting System Chapter 03 Use Of Spreadsheet In Business Applications
NCERT Class 12 Accountancy Computerised Accounting Use Of Spreadsheet In Business Applications
Computerised Accounting System Chapter 04 Graphs and Charts For Business Data
NCERT Class 12 Accountancy Computerised Accounting Graphs and Charts For Business Data
Computerised Accounting System Chapter 05 Data Base Management System For Accounting
NCERT Class 12 Accountancy Computerised Accounting Spreadsheet Data Base Management System
Part 1 Chapter 01 Accounting for Not for Profit Organisation
NCERT Class 12 Accountancy Accounting For Not for Profit Organisation
Part 1 Chapter 02 Accounting for Partnership Basic Concepts
NCERT Class 12 Accountancy Accounting for Partnership Basic Concepts
Part 1 Chapter 03 Reconstitution of a Partnership Firm Admission of a Partner
NCERT Class 12 Accountancy Reconstitution of a Partnership Firm Admission of a Partner
Part 1 Chapter 04 Reconstitution of a Partnership Firm Retirement/Death of a Partner
NCERT Class 12 Accountancy Reconstitution of a Partnership Firm Retirement Death of a Partner
Part 1 Chapter 05 Dissolution of Partnership Firm
NCERT Class 12 Accountancy Dissolution of Partnership Firm
Part 2 Chapter 01 Accounting for Share Capital
NCERT Class 12 Accountancy Accounting for Share Capital
Part 2 Chapter 02 Issue and Redemption of Debentures
NCERT Class 12 Accountancy Issue and Redemption of Debentures
Part 2 Chapter 03 Financial Statements Of a Company
NCERT Class 12 Accountancy Financial Statements of a Company
Part 2 Chapter 04 Analysis of Financial Statements
NCERT Class 12 Accountancy Part 1 Analysis of Financial Statements
Part 2 Chapter 05 Accounting Ratios
NCERT Class 12 Accountancy Accounting Ratios
Part 2 Chapter 06 Cash Flow Statement
NCERT Class 12 Accountancy Cash Flow Statement

Accountancy NCERT Book Class 12 Part 2 Chapter 3 Financial Statements Of a Company

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