NCERT Book Class 12 Accountancy (Part 2) Chapter 3 Financial Statements of a Company

144 Accountancy : Company Accounts and Analysis of Financial Statements

Financial Statements of a Company 3

H aving understood how a company raises its
capital, we have to learn the nature, objectives
and types of financial statements it has to prepare
including their contents, format, uses and
limitations. The financial statements are the end
products of accounting process. They are prepared
following accounting policies consistently
accounting standards prescribed in the Companies
Act and accounting concepts, principles,
procedures and also the legal environment in which
the business organisations operate. These
LEARNING OBJECTIVES statements are the outcome of the summarising
After studying this chapter, process of accounting and are, therefore, the
you will be able to : sources of information on the basis of which
• explain the nature and conclusions are drawn about the profitability and
objectives of financial the financial position of a company. Hence, they
statements of a need to be arranged in a proper form with suitable
company; contents so that the shareholders and other users
• describe the form and of financial statements can easily understand and
content of Statement of use them in their economic decisions in a
Profit and Loss of a meaningful way.
company as per
schedule III; 3.1 Meaning of Financial Statements
• describe the form and
content of balance sheet Financial statements are the basic and formal annual
of a company as per reports through which the corporate management
schedule III; communicates financial information to its owners
• explain the significance and various other external parties which include
and limitations of investors, tax authorities, government, employees,
financial statements; etc. These refer to: the balance sheet (position
and statement) as at the end of accounting period, the
• prepare the financial statement of profit and loss of a company and the
statements. cash flow statement.