Financial Statements of a Company Class 12 Notes

Accountancy is an integral subject of the class 12 commerce stream, and financial statements of a company class 12 form an essential part of the accountancy syllabus of class 12. If you are thorough with your notes and prepare well, it can be scoring as well. Here in this blog, we shall discuss in brief what this chapter is all about. If you are preparing for your class 12 board exams, it would be of great help. Read on to know more about the financial statements of a company class 12.

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What is a Financial Statement? 

The statements that are prepared with the primary purpose of ascertaining the profit and loss suffered and the position of assets and liabilities during a particular time are known as financial statements.  According to section 129 of the companies act, the company should prepare its financial statements every year in the prescribed form, i.e. Schedule III of the Companies Act, 2013. As per Section2(40) of the Companies Act,2013, a set of financial statements include :

• Balance sheet i.e. position statement
• Statement of profit and loss i.e. income statements
• Notes to accounts
• Cash flow statement

Financial Statements report on stewardship function and provide a basis of fiscal policies and of granting credits.

Users of Financial Statements

The chapter on the financial statements of a company class 12 also mentions various users of financial statements. They are listed below. But before that, make sure you go through our Organising Class 12 Notes

• Owners including shareholders and investors
• Debentureholders and financial institutions (bankers)
• Creditors
• Management
• Employees
• Government, tax authorities and regulators

Characteristics of Financial Statements

According to the chapter on financial statements of a company class 12, there are certain characteristics and nature of financial statements. 

• Financial statements are historical documents.
• These are prepared using monetary terms.
• The financial position is revealed by the balance sheet and statement of profit and loss shows the profitability of the business organization.

Nature of Financial Statements

The nature of financial statements is as follows: 

• Recorded facts
• Accounting conventions
• Postulates

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What are the Objectives of Financial Statements?

We now move on to another pertinent question which is what are the objectives of financial statements. There is a purpose of making financial statements as per the chapter financial statements of a company class 12. They are mentioned below.

• Financial statements keep businesses informed about the earning capacity of the business.
• Financial statements also inform about the economic resources and obligations of an enterprise.
• Financial statements also inform about the cash flows.
• Financial statements supply relevant information that could be used for judging the management’s ability to utilize the resources of business effectively.
• Financial statements have to report the activities of the business organisation affecting society.

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Essentials of Financial Statements

Every financial statement needs to meet and have certain essentials to it. The chapter financial statements of a company class 12 also talks about the essentials of financial statements. They are listed below.

• Timeliness
• Understandability
• Verifiable
• Accurate Information
• Comparable

What is a Balance Sheet?

In simple terms, one may call a balance sheet a statement of assets and liabilities of the company at a particular date. It is prepared and presented in the form prescribed in Schedule III Part I of the Companies Act, 2013. It is broadly divided into two parts, (i) Equity and liabilities (ii) Assets.

Statement of Profit and Loss

The title of ‘profit and loss account’ is charged to the statement of profit and loss in a financial statement according to financial statements of a company class 12. It shows the net result of business operations. Its form is prescribed in Schedule III, Part II of the Companies Act, 2013.

Explore Nature and Significance of Management Class 12 Notes

So, this was all about Financial Statements of a Company class 12. We hope it helps you prepare for your exams and also aids you in revising. If you are confused about which career path to choose after class 12th commerce, get in touch with our Leverage Edu experts. They will help you choose a stream that suits you perfectly and help you carve a niche for yourself. Sign up for a free session today!