Financial Statements of a Company Test 24

The economic events are identified, measured and recorded in order that the pertinent information is generated and communicated in a certain form to management and other internal and external users. The information is regularly communicated through accounting reports.

Accounting reports are considered to be equivalent to the financial statements. These statements includes Income statement, Balance sheet and Statement of cash flows.

Balance sheet is a statement of assets and liabilities and according to money measurement concept those items which can be interpreted in terms of money are recorded and shown in financial books.
Thus, it can be said that those assets and liabilities which expressed in monetary terms is shown in a Balance Sheet.

A company whose capital is contributed by a large number of persons called shareholders who are the real owners of the company. But neither it is possible for all of them to participate in the management of the company nor considered desirable. Therefore, they elect a Board of Directors as their representative to manage the affairs of the company.

The primary responsibility for the adequacy of disclosure in the financial statements of an issuer rests with the Management. (Management is responsible for the accounting policies and the internal control of an entity, including the accounting system. Accordingly, management has the primary responsibility for the fairness of presentation of the financial statements in accordance with GAAP.)

The liability of the members of the company is limited to the extent of unpaid amount of the shares held by them. In the case of the companies limited by guarantee, the liability of its members is limited to the extent of the guarantee given by them in the event of the company being wound up.

Section $$141(3)$$, of the companies act, $$2013$$ defines disqualification of the auditor. As per this section a person who is indebted to the company for an amount exceeding one thousand rupees, or who has given any guarantee or provided any security in connection with the indebtedness of any third person to the company for an amount exceeding one thousand rupees is disqualified to be appointed as auditor.

Drawings is an amount withdrawn from business for personal use. It reduces the capital. Machinery is an asset. It comes in asset side of balance sheet. Money owed by firm to suppliers represents the liability of business. So it also appear in balance sheet. But carriage inward is an expense. It refers to the transportation costs associated with the purchase of goods. It comes in Trading Account. 

There are four main types of financial statements, which are as follows:

Income statement is report that reveals the financial performance of an organisation for the entire reporting period.

Balance sheet is report that shows the financial position of a business as of the report date (so it covers a specific point in time).The information is aggregated into the general classifications of assets, liabilities, and equity.

Statement of cash flows is report that reveals the cash inflows and outflows experienced by an organisation during the reporting period.

Statement of changes in equity is the report of documents, all changes in equity during the reporting period. These changes include the issuance or purchase of shares, dividends issued, and profits or losses.

A financial statement is a collection of data organised according to logical and consistent accounting procedures. Its purpose is to convey an understanding of some financial aspects of a business firm. The financial statements are comprised of four basic reports, which are Income statement, Balance sheet, Statement of cash flows, Statement of retained earnings.