Financial Statement Class 11 Notes

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Financial Statement Class 11 Notes

Financial statements, as the word is self-explanatory, are those statements that show a clear picture of profitability (income statement) and financial position (balance sheet) of the business at the end of an accounting period. As we always say that though accountancy or accounts is a practical subject, it’s theory is equally important to understand. Hence the theory of Accountancy can not be ignored for better understanding and working. To understand the concepts and theory related to Financial Statement Class 11, both of which are chapters of class 11, read this blog till the end so that you are thorough with the concepts. 

Must Read: Theory Base Of Accounting Class 11

Financial Statements 

Financial statement class 11 first begins with understanding what is a financial statement. As John N. Myer had quoted that the financial statements provide a summary of the accounts of a business or an organisation, the balance sheet reflecting the assets, liabilities and capital as on a certain date and the income statement showing the result of operation during a certain period. The financial statement is a broad term that includes 3 major components. These are:

  • Income statements 
  • Statement of Financial Position 
  • Schedules and notes forming part of Balance sheet and income statement

Objectives Of Preparing Financial Statements

As per Financial Statement class 11 chapters, the main objectives to prepare a financial statement at the end of an accounting period are as follows:

  • To present a fair and true view of the financial performance of the business i.e., the profits and the losses at the end of the financial period.
  • To present a true and a fair view of the financial position of the business i.e., the assets and the liabilities at the end of the financial period. 

Capital Expenditure vs Revenue Expenditure vs Deferred Revenue Expenditure

Moving further in Financial Statement Class 11, there is a comparison between capital expenditure vs revenue expenditure vs deferred revenue expenditure. Capital expenditures are those expenditures whose benefit is derived by the business for more than one year. These expenditures are recorded on the assets side of the Balance sheet. Example: purchase of fixed assets, payment of goodwill, decrease in long term debts etc.

On the contrary, the recurring expenditures as the name suggests are those expenditures that are incurred for operating the business smoothly and which help to maintain the business’s earning capacity. These expenditures are shown on the debit side of the income statement i.e. the trading and profit and loss account. Example: purchase of goods during the year, expenses such as salaries, wages, postage, carriage etc.

Deferred revenue expenditures are those expenditures which are although revenue in nature, but the heavy amount spent and the derived benefit can be used over a number of years. An example can be heavy expenses on advertising, promotions, launching a new product or service etc. 

Capital Receipts vs Revenue Receipts

Capital receipts are those receipts that are irregular receipts and don’t affect the profit and loss account or the income statement of the business. It either increases the liabilities or reduces the fixed assets and hence shown in the balance sheet of the business. 

On the contrary, the revenue receipts under financial statement class 11, are those receipts that are received in the normal course of business. Examples can be receipts earned from sales, a commission earned, rent received and more. These receipts hence increase the profit in the profit and loss account. 

Types Of Expenses 

As per financial statement class 11, expenses can be categorised into 2 categories that are:

  • Direct expenses: direct expenses are those expenses of the business which are incurred on purchasing of goods and for converting raw material into the finished goods. For example, manufacturing wages or production expenses etc. These expenses are shown on the debit side of the trading account. 
  • Indirect expenses: indirect expenses are those expenses which are not directly related to production or purchase of the goods or any services of the business. On the contrary, it includes those expenses which are related to office and administration, selling and distribution of goods and financial expenses etc. These expenses are shown on the debit side of the profit and loss account. 

Some Important Formulas 

Mentioned below are some important formulas which are related to financial statement. You can have a look here: 

  • Gross Profit= Net Sales- Cost of Goods Sold (COGS)
  • Net Sales= Total Sales- Sales Return 
  • Cost of Goods Sold (COGS)= Opening Stock + Net Purchases + Direct Expenses – Closing Stock
  • Net Purchases= Total Purchases- Purchases Return 
  • Operating Profit=Net sales- Operating Cost
  • Operating Profit= Gross Profit- (office and administration expenses + selling and distribution expenses)
  • Net Profit= Operating Profit + Non operating income – Non operating expenses

Note: Operating Profits are also known as EBIT (Earnings before interest and taxes) 

Income Statements

According to the financial statement class 11 chapters, the income statements are prepared by the organisation or a business to ascertain correct and accurate gross profits or losses and net profits or losses during an accounting period. The income statements are further divided into two accounts or parts:

  • Trading Account: The trading account shows the gross profits earned or gross losses incurred by the business during a financial year. 
  • Profit and Loss Account: the P/L Account shows the net profits earned or net losses incurred by the business during a financial period. 

Format Of Trading Account 

There is a particular format which is followed in a trading account. It is mentioned in great detail in Financial Statement class 11 chapters. You can check it out here. 

Trading Account of XYZ Pvt. Ltd.

For the year ending 31st March 2020

Dr.                                                                                                                                              Cr.

Particulars Amount (INR) Particulars Amount (INR)
To opening stock By sales 
To purchases  By closing stock 
To wages  By scrap sales 
To carriage inward 
To Freight inwards
To cartage 
To fuel and power
To octroi charges 
Tio other direct expenses 
To Gross Profit t/f to P/L A/c xxx By loss t/f to P/L A/c xxx

Also Read: Class 11 Accounts from Incomplete Records

Format Of Trading Account 

Tabulated below is the format of trading accounts related to profit and loss accounts. Have a look here. 

Profit and Loss Account of XYZ Pvt. Ltd.

For the year ending 31st March 2020

Dr.                                                                                                                                               Cr.

Particulars Amount (INR) Particulars Amount (INR)
To gross loss t/f from Trading A/c By gross profit t/f from Trading A/c
To salaries  By rent received
To rent  By discount received 
To printing and stationery  By commission received 
To postages and telephones By interest received 
To electricity bill By dividend received 
To insurance premium  By bad debts recovered 
To legal expenses  By gain on sale of fixed assets 
To establishment expenses  By miscellaneous receipts 
To trade expenses  By Net Loss t/f to Capital A/c (if Dr. > Cr. side)
To audit fee
To travelling expenses 
To general expenses 
To carriage and freight outwards 
To commission 
To brokerage 
To advertisement 
To bad debts 
To export duty 
To export duty 
To packing expenses 
To interest paid 
To discounts given 
To bank charges 
To repairs 
To depreciation on fixed assets 
To conveyance expenses 
To donations and charity 
To loss on sale of fixed assets 
To entertainment expenses 
To loss by fire 
To loss by theft 
To other miscellaneous expenses 
To Net Profit t/f to Capital A/c (if Cr. > Dr. side)

Balance Sheet

According to the financial statement class 11 chapters, a balance sheet is a summarised statement of assets and liabilities that is prepared at the end of the financial year. It is made to show the financial position of the business or the organisation. All the assets are placed on the right side of the balance sheet and all the liabilities at the left side. Please remember these points:

  • The assets are arranged in the order of the liquidity in the balance sheet. This means that the most liquid asset example the cash in hand is shown first and the least liquid assets such as the goodwill is shown last. 
  • The liabilities are arranged in the order of timing. This means that the liabilities which are to be paid immediately or at first are shown first such as the creditors and the liabilities which are to be paid later are shown at the last such as long term loans. 

Format of the Balance Sheet 

Moving further in the financial statement chapters class 11 chapters, we have the format of the balance sheet. It is tabulated below. 

Balance Sheet of XYZ Pvt. Ltd.

As at 31st March 2020

Liabilities  Amount (INR) Assets  Amount (INR)
Bank overdraft  Cash in hand 
Bills payable  Cash at bank 
Sundry creditors  Bills receivable 
Outstanding expenses  Short term investment 
Income received in advance  Sundry debtors 
Long term loans  Prepaid expenses 
Capital  Accrued income 
Add: Interest on capital  Closing stock 
Add: net profit  Furniture and Fixtures
Less: drawings  Plant and Machinery 
Less: net loss Building 
Less: income tax  Land 
Goodwill 

Important Adjustments At A Glance 

The Financial Statement 1 class 11 chapter is more about the theoretical part of financial statements in general and gives you insight about the basic application of financial statements (income statements and position statements) in a business or an organisation. On the contrary, the Financial Statement 2 class 11 chapter focuses on key important adjustments and the application or the practical usage of financial statements in problem-solving and practical/ numerical questions. In order to not confuse students and for their ease of convenience, we decided to merge the study/revision notes of Financial Statement 1 class 11 and the Financial Statement 2 class 11. Here is an extensive detailed table that we have provided below for quick last-minute revision of key important adjustments and adjustment entries and their treatments in Trading A/c, Profit and Loss A/c and Balance Sheet from Financial Statement 2 class 11 chapter. Have a look:

Adjustment  Adjustment entry  Treatment in the Trading A/c  Treatment in the Profit and Loss A/c  Treatment in Balance Sheet 
Closing stock  Closing stock A/c……Dr.To Trading A/c Shown on the credit side  Shown on the assets side 
Outstanding expenses  Expenses A/c………..Dr.To O/s Expenses A/c  Shown on the debit side  Shown on the debit side  Shown on the liabilities side 
Prepaid or unexpired expenses  Prepaid expenses A/cTo Expenses A/c Deducted from respective expenses on the debit side  Deducted from respective expenses on the debit side Shown on the assets side 
Depreciation  Depreciation A/c…….Dr.To assets A/c  Shown on the debit side  Deducted from the asset on the asset side
Accrued Income  Accrued income A/c…Dr.To income A/c Added to the respective income on the credit side   Shown on the assets side 
Unearned income  Income A/c……………Dr.To unearned income A/c  Deducted from the respective income on the credit side  Shown on the liabilities side 
Interest on capital  Interest on Capital A/cTo capital A/c  Shown on the debit side  Added to the capital on the liabilities side
Interest on drawings  Interest on Drawings A/cTo drawings A/c Shown on the debit side  Added to drawings and then deducted from the Capital on the liabilities side
Interest on loan  Interest on loan A/c…Dr.To loan A/c  Shown on the debit side  Added to the loan on the liabilities side 
Further bad debts  Bad debts A/c……….Dr.To sundry debtors A/c Added to bad debts on the debit side  Deducted from debtors on the assets side 
Provision for doubtful debts  Profit & Loss A/c…….Dr.To provision for doubtful debts A/c Added to bed debts on the debit side  Deducted from debtors on the asset side 
Provision for discount on debtors  Profit & Loss A/c…….Dr.To provision for discount on debtors A/c Shown on the debit side  Deducted from debtors on the asset side 
Abnormal loss of stock  Insurance Co. A/c……Dr.Profit & Loss A/c…….Dr.
To purchases A/c 
Total amount of loss will be deducted from the purchases on the debit side  Amount recovered from the insurance company is shown on the debit side  Amount recovered from the insurance company is shown on the asset side 
Charity in the form of goods  Charity A/c……………Dr.To purchases A/c Deducted from purchases on the debit side  Shown on the debit side 
Goods distributed as free samples  Free samples A/c……Dr.To purchases A/c Deducted from purchases on the debit side  Shown on the debit side 
Drawings in goods  Drawings A/c…………Dr.To purchases A/c Deducted from purchases on the debit side  Deducted from the capital on the liabilities side 
Manager’s commission  Manager’s commission A/cTo o/s commission A/c  Shown on the debit side  Shown on the liabilities side 
Goods sold but omitted to be recorded  Debtors A/c…….…….Dr.To sales A/c Added to the sales on the credit side  Added to the debtors on the assets side 
Goods purchased but omitted to be recorded  Purchases A/c……….Dr.To creditors A/c Added to purchases on the debit side  Added to creditors on the liabilities side 

Explore: Best Accounting Books for Beginners

This brings us to the end of this blog on financial statement class 11 study and revision notes. Even though both the chapters are lengthy, notes help us in memorizing the important parts. Are you worried about selecting the right stream after class 12th? If you are looking for a career that perfectly suits you, get in touch with our Leverage Edu experts and sign up for a free session today! 

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