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Kanika Sharma

Assistant Prof. In Commerce

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Financial statements

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Meaning of financial statements

Financial statement is a formal record of the

financial activities and position of the business , person or other entity. Financial statement is to provide information about the financial position, performance and changes in financial position of the enterprise that is useful to a wide range of users in making economic decisions.

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Definition of financial statement

According to Anthony:-

“Financial statements, essentially, are interim reports, presented annually and reflect a division of the life of an enterprise into more or less arbitrary accounting period-more frequently a year”

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Nature of financial statements

Recorded facts

Accounting conventions

Postulates

Personal judgments

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Types of financial statements

Balance sheet

Income statement

Statement in change of financial position

Statement of change in owner’s equity

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Characteristics of Ideal Financial Statements �

  • Depicts True Financial Position
  • Effective Presentation
  • Relevance
  • Attractive
  • Easiness
  • Comparability
  • Analytical Representation
  • Brief
  • Promptness

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USE &IMPORTANCE OF FINANCIAL STATEMENTS

  • Management
  • Creditors
  • Bankers
  • Investors
  • Government
  • Trade association
  • Stock exchange

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Limitations of financial statements

  • Only interim reports
  • Do not give exact position
  • Historical costs
  • Impact of non– monetary facts ignored
  • No precision

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