Financial Statements

Any organization doing the business, whether it is manufacturing activity or trading activity or service activity, is interested in knowing basically two facts about the business.

1)      Where the business stands at any given point of time in financial terms.

2)      What is the result of operations carries out by the business organisation during a specific period.

First financial statement is Balance Sheet. This is the answer to the first question viz. Where the business stands in financial terms. Balance Sheet informs about the various sources used by the organisation to raise the funds which technically result into what are referred to as “liabilities” and the way these sources are used which technically result into the creation of “assets”. Sometimes, Balance Sheet is also referred to as “Statement of Sources and Application of funds”. Effectively, Balance Sheet is a listing of various assets and liabilities of the organisation at any given point of time. Technically, Balance Sheet is a position statement in the sense it refers to a particular date. As such, Balance Sheet is referred to as “Balance Sheet as on _____ or “Balance Sheet as at_____.

Second financial statement is Profitability Statement. In technical language, it is referred to as “Profit & Loss Account”. This is the answer to the second question viz. What is the result of operations carries out by the business organisation during a specific period i.e. whether the operations have resulted into a profit or loss and by what amount. Technically, Profitability statement is a period statement in the sense it refers to a particular period. This maybe a month, a quarter, a half year or a year depending upon the organisation and the purpose for which it is prepared. As such, Profitability statement is referred to as “Profit and Loss Account for the year ending on _____.