Notes Financial Statements of a Company Class 12 Accountancy

Class 12 Notes

Please refer to the Financial Statements of a Company Revision Notes given below. These revision notes have been designed as per the latest NCERT, CBSE and KVS books issued for the current academic year. Students will be able to understand the entire chapter in your class 12th Accountancy book. We have provided chapter wise Notes for Class 12 Accountancy as per the latest examination pattern.

Revision Notes Chapter 3 Financial Statements of a Company

Students of Class 12 Accountancy will be able to revise the entire chapter and also learn all important concepts based on the topic wise notes given below. Our best teachers for Grade 12 have prepared these to help you get better marks in upcoming examinations. These revision notes cover all important topics given in this chapter.

Financial Statements

♦ FS are summarised statements of accounting data, that provides information w.r.t financial position & profitability to various stakeholders (i.e. users).
♦ It is the final product of the entire accounting process.
♦ In India, companies prepare their FS as per Schedule III of The Companies Act, 2013.
♦ FS includes:

Balance Sheet (Part I of Schedule III)

♦ It is also known as “Position Statement”, as it shows financial position of a company on a particular date.
♦ It is based on following equation:
Assets = Liabilities + Shareholder’s Funds
♦ It shows historical data.

Statement of Profit & Loss (Part II of Schedule III)

♦ It shows financial performance of a company during a particular period (i.e. revenue, expenses, profit/loss etc)
♦ It is also known as “Income Statement”.
♦ It shows historical data.

Notes to Accounts

♦ It supports the Balance Sheet & Statement of P&L.
♦ It gives details of various items appearing in Balance Sheet & P&L Statement.
♦ It gives other details like explanatory notes for various transactions & events, accounting policies used & any other additional information as may be required by Companies Act.

Cash Flow Statement

♦ It is prepared as per AS-3.
♦ It shows inflows & outflows of Cash & Cash Equivalents.

Nature of Financial Statements

♦ Recorded facts
♦ Accounting conventions, concepts & assumptions (postulates/pre-requisites) are followed in FS preparation (eg: Historical Cost Concept)
♦ Accounting Standards issued by ICAI & prescribed in Companies Act 2013, are followed.
♦ Involves selection of accounting policies (eg: method of inventory valuation)
♦ Use of accounting estimates. Thus, it involves personal judgement (eg: useful life of asset, provision for doubtful debts etc.)
♦ FS acts as a source of financial information for various users.

Objectives of Financial Statements

♦ To provide information about economic resources & obligations of a business
♦ To provide information about the earning capacity of the business
♦ To provide information about cash flows
♦ To judge effectiveness of management
♦ To provide information about various activities of business
♦ To disclose accounting policies followed by the business.

Annual Report
♦ It is a report prepared by a company which provides various statutory, financial & other material information.
♦ It helps the users to better understand the performance of a company, which enables them to make better & informed decisions.
♦ Content of Annual Reports (illustrative examples):
♦ Report of Board of Directors;
♦ Auditor’s Report to the shareholders;
♦ Financial statements; etc.