FINANCIAL

STATEMENTS
“Financial Statements are prepared
at the end of the financial year or
accounting period to know profit or
loss earned by an entity during the
year and the financial position of the
business”
“Trading Account is a part of the
financial statement which determines
the Gross Profit/Loss during an
accounting year.Its main components
are Sales, Purchases and all Direct
Expenses”
“A Profit and Loss Account is an
account into which all gains and
losses are collected in order to
ascertain Net Profit/Loss made by
an entity during an accounting
year”
 TRADING ACCOUNT
Dr. for the year ending 31 March….
Cr.
Particulars Amount Particulars Amount

To Opening Stock xxxx By Sales xxxx

To Purchases xxxx Less: Sales
Less: Pur. Returns Return
By Closing Stock xxxx
To All Direct xxxx
Expenses

To Gross Profit xxxx

Xxxx xxxx
PROFIT & LOSS ACCOUNT
Dr. for the year ending 31 March….
Cr.
Particulars Amount Particulars Amount

To All Indirect xxxx By Gross Profit xxxx

Expenses xxxx
By Indirect
Incomes xxxx
To Net Profit xxxx
-transferred to
Capital Account
xxxx

Xxxx xxxx
 Capital Expenditure
Vs.
Revenue Expenditure
 Capital expenditure:  Revenue expenditure:
 Incurred for  Incurred to conduct
acquisition of FA business
 Its benefits extend
 Its benefits extend to
only one year
to more than one
year  It’s a nominal account
 Its a real account
 It’s a part of the
Trading or Profit &
 It is shown in the Loss Account
Balance Sheet
 Capital Receipts
Vs.
Revenue Receipts
 Capital Receipts:  Revenue Receipts:
Capital receipts are These are the amounts
the amounts received in the normal &
received in the regular course of the
form of additional business mainly through
capital , loans sale of goods/services.
These are shown in the
received and sale credit side of the Profit &
proceeds of fixed Loss Accounts.
assets. Capital
receipts are shown
in the Balance
Sheets only.
 Direct Expenses
Vs.
Indirect Expenses
 Direct Expenses:  Indirect Expenses:
These are the These are the
expenses which are expenses which are
incurred on the incurred for the sales
goods purchased and distributions of the
till they are brought goods, office
to the place of administration and
business for sale. financial charges.
These are debited These expenses are
to the Trading debited to Profit & Loss
Account. Account.
 DIRECT EXPENSES
 Carriage or Freight Inward
 Customs duty

 Wages

 Power & Fuel

 Factory Rent

 Cartage
 INDIRECT EXPENSES
 Salaries
 Office Rent
 Advertisement
 Insurance
 Traveling Expenses
 Postage & Telephone
 Depreciation
 Bad Debt
 Discount Allowed
 Printing & Stationery
 Office Lighting
 Audit Fee
 Interest on capital
 Interest on Loan
 Balance Sheet
“A statement which sets out the assets
and liabilities of a firm or an
institution as at a certain date”

A Balance Sheet is prepared with a

view to measure the true financial
position of a business at a particular
point of time.
BALANCE SHEET
AS ON 31ST . MARCH ….
LIABILITIES Amount ASSETS Amount

CAPITAL XXXX ALL ASSETS XXXX

Add: N. Profit xxx
Less: Drawings XXXX
xxx
XXXX
ALL LIABILITIES

XXXX XXXX
 Some Equations
Gross Profit=Net Sales- Cost of Goods
Sold (COGS)
Where
Net Sales= Total Sales – Sales Returns
COGS= Opening Stock+
Net Purchases +Direct Expenses-
Closing Stock
Net Purchases= Purchase – Purchase Returns
 Net Profit = Gross Profit +Revenue
Receipts – Indirect Expenses.