Explanation
A financial statement is a collection of data organised according to logical and consistent accounting procedures. Its purpose is to convey an understanding of some financial aspects of a business firm.
The users of financial statements include management, investors, shareholders, creditors, government, bankers, employees and public at large.
The investors include both short-term and long-term investors. Their prime considerations in their investment decisions are security and liquidity of their investment with reasonable profitability. Financial statements help the investors to assess long-term and short-term solvency as well as the profitability of the concern.
Long-term borrowings generally refers to a company's loans and other liabilities that will not become due within one year of the balance sheet date. Public deposits and debenture comes within the ambit of long-term borrowings as they are taken for more than a financial period. A cash credit is a short-term cash loan to a company provided by banks on their current account.
Financial statements show aggregate information but not detailed information. Hence, they may not help the users in decision-making much.
As Financial statements are prepared on the basis of historical cost.
Financial statements are the outcome of recorded facts, accounting concepts and conventions used and personal judgements made in different situations by the accountants. Hence, bias may be observed in the results, and the financial position depicted in financial statements may not be realistic.
Shareholders of companies are interested in knowing the status, safety and return on their investment.
They may also need information to take decision about continuation or discontinuation of their investment in the business. Financial statements provide information to the shareholders in taking such important decisions.
Financial statements are written records of a business's financial situation. They include standard reports like the balance sheet, income or profit and loss statements, and cash flow statement.
Though utmost care is taken in the preparation of the financial statements and provide detailed information to the users. Shareholders of companies are interested in knowing the status, safety and return on their investment. They may also need information to take decision about continuation or discontinuation of their investment in the business.
A balance sheet (also called the statement of position statement), can be defined as a statement of a firm's assets, liabilities and net worth. goodwill is an asset.
Standard accounting conventions present the balance sheet in one of two formats: the account form (horizontal presentation) and the report form (vertical presentation). But now According to the companies Act 2013 The balance sheet of a company is prepared as per the formal prescribed in part II of Schedule III of the Act in vertical presentation.
Liabilities and provisions made by sole proprietor are transferred to left hand side of the balance sheet.
A sole proprietorship, also known as the sole trader, individual entrepreneurship or proprietorship, is a type of enterprise that is owned and run by one person and in which there is no legal distinction between the owner and the business entity.
The owner is in direct control of all elements and is legally accountable for the finances of such business and this may include debts, loans, loss, etc. The sole trader receives all profits and has unlimited responsibility for all losses and debts.
Statement of changes in equity is the report of documents, all changes in equity or business capital during the reporting period. These changes include the issuance or purchase of shares, dividends issued, and profits or losses.
The economic events are identified, measured and recorded in order that the pertinent information is generated and communicated in a certain form to management and other internal and external users. The information is regularly communicated through accounting reports.
The primary responsibility for the adequacy of disclosure in the financial statements of an issuer rests with the Management. (Management is responsible for the accounting policies and the internal control of an entity, including the accounting system. Accordingly, management has the primary responsibility for the fairness of presentation of the financial statements in accordance with GAAP.)
The liability of the members of the company is limited to the extent of unpaid amount of the shares held by them. In the case of the companies limited by guarantee, the liability of its members is limited to the extent of the guarantee given by them in the event of the company being wound up.
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