Tuesday, 12 November 2019

Unit 2: Understanding Corporate Financial Statements

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Unit 2: Understanding Corporate Financial Statements   



Financial statements are the most prominent and useful source of information to the investors.

The objective of general purpose fi nancial statements is to provide information about the fi nancial position, fi nancial performance and cash fl ows of an entity that is useful to a wide range of users in making economic decisions.

Financial statements also show the results of management's stewardship of the resources entrusted to it.

To meet this objective, fi nancial statements provide information about an entity's: (a) assets; (b) liabilities; (c) equity; (d) income and expenses, including gains and losses; (e) other changes in equity; and (f) cash fl ows.

The companies have four types of fi nancial statements, viz.

Balance sheet, Income statement, Statement of retained earnings and Statement of cash fl ows.

Financial statements are the most prominent and useful source of information to the investors.

Financial statements also provide useful information to the shareholders of a company concerning the company's fi nancial position on a particular day, its performance and growth, its progress or regress, its future, etc.

Financial statements record only those facts, which are possible to be expressed in fi nancial terms.

Non-monetary events, howsoever important they may be, are not recorded.

Therefore, fi nancial statements do not provide all the information about the fi rm.

Balance Sheet: The balance sheet provides an insight into the fi nancial status of a company at a particular time.

Marshalling of Assets and Liabilities: Order of presenting the assets and liabilities in the balance sheet is called marshalling of assets and liabilities.

Retained Earnings Statement: A retained earnings statement explains the changes in a company’s retained earnings over the reporting period.

Trading Account: This account is prepared to determine the amount of gross profi t or gross loss on sales.




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