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Financial Statement Concept


Financial statement, also known by financial report, that statement which contain financial information of a firm or business enterprises. The data contain in this statement are according to accounting principles. In general it is general purpose entity statement as they contain the report of financial position and financial result of a firm for a given accounting period.

The main motive against the making of financial statement is to tell to investor, owner, and vendor about the liquidity status of the firm. Its helps the management in taking financial and various others decision. Its helps to creditors also, as they know the creditability of the firm. Its helps the stock-holders as they know the future of the company in which they invest.

Financial Statements and its Anatomy

The two major statement of financial statement are i.e. Balance Sheet& Income Statement. It is a record of operating transaction which shows the financial position and progress of the enterprises.

A) Balance Sheet

In a layman term a balance sheet is an statement which outlines how much we spend and how much we get as an income,i.e what we have gain or how much we have earned for a particular period of time. Balance sheet in a broader sense can be summaries into below points

• A report which outlines the equity, capital and total debt of an organization or business.
• A report which shows the total amount a company owes to its creditors.
• A report from which we can revel or assumes the liquidity status of the firm for a particular give period.
• A report from which we can illustrate our total net worth.
• A written statement of the total amount of money and property a company has, and also it shows how much company has to pay.

Balance Sheet and its Form


(I) Liabilities Side

The particulars are contain under five heading

• Share Capital: – Its must show Authorised capital, Issued capital, Subscribed Capital & Paid-up capital with detailing of different types of shares i.e. equity and preference shares.
• Reserve and surplus: – Capital reserves is shown under this head and any other reserve which the company had made for appropriations out of undistributed profits.
• Secured Loans: – Loans taken from banks or such other advances which are taken against any security.
• Unsecured Loans: – Any loan other than secured loan came under this head
• Current Liabilities and provisions: – Sundry creditors, accrued interest, Provision of taxes and dividend, unclaim dividends are shown under this head.

(II) Assets Side

The particulars are contain under five heading

• Fixed Assets: – Expenditure for Plant & Machinery, Furniture, land & buildings etc.
• Investment: – Amount made investment under govt. securities, shares or debentures etc.
• Current Assets & Loans & Advances:- Cash & Bank balances, stocks, debtors.
• Miscellaneous Expenditure: – Commission, preliminary expenses.
• Income Statement and its balance: – Debit balances of Income Statement.

(B) Income Statement

Also known by Income statement, is anindication report which shows income changes, expenses changes by doing business transaction during a given frame of time.
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