Financial Statements


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hi all , i am uploading a ppt of Financial statment analysis ,which is very important for analysis of any company. kindly check it & suggest me if any thing required....

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Financial Statements

  3. 3. ACCOUNTING PROCESS <ul><li>Cash Book </li></ul><ul><li>Purchases Book </li></ul><ul><li>Sales Book </li></ul><ul><li>Purchase Return Book </li></ul><ul><li>Sales Return Book </li></ul><ul><li>Bills Receivable Book </li></ul><ul><li>Bills Payable Book </li></ul><ul><li>Journal Book </li></ul>Analysis & Interpretation Ledger Trial Balance Trading and P&L Account Balance Sheet TRANSACTION Books of Original Entry
  4. 4. Trial balance <ul><li>At the end of the accounting period (usually one year), the balances on each ledger account are listed in a trial balance </li></ul><ul><li>The trial balance acts as an arithmetical check on the records in the accounting system </li></ul><ul><li>The summary figures in the trial balance are used as the basis for preparing financial statements, which are used to communicate information about the ‘financial health’ of the business to users </li></ul>
  5. 5. 09/06/09
  6. 6. USERS OF FINANCIAL STATEMENTS <ul><li>        Owner/Promoters </li></ul><ul><li>        Management </li></ul><ul><li>        Present and potential investors </li></ul><ul><li>        Lenders/Suppliers/Creditors </li></ul><ul><li>        Banks </li></ul><ul><li>        Employees/Workers </li></ul><ul><li>        Government and Regulatory Agencies </li></ul><ul><li>        Researchers/Security Analysts </li></ul><ul><li>        Customers </li></ul>
  7. 7. USERS OF FINANCIAL STATEMENTS Financial Statements Internal Users Management Group External Users Financing Group Public Group <ul><li>Board of directors </li></ul><ul><li>Partners </li></ul><ul><li>Managers </li></ul><ul><li>Officers </li></ul><ul><li>Investors </li></ul><ul><li>Lenders </li></ul><ul><li>Suppliers </li></ul><ul><li>Govt. Agencies </li></ul><ul><li>Employees </li></ul><ul><li>Customers </li></ul><ul><li>Others like </li></ul><ul><li>Academicians, </li></ul><ul><li>analyst </li></ul><ul><li>Researchers etc </li></ul>
  8. 8. A Hierarchy of Accounting Qualities Decision Makers & their characteristics Benefits > cost Understandability Decision Usefulness Relevance Reliability Productive Value Feedback Value Timeliness Verifiability Representational faithfulness Neutrality Comparability Materiality
  9. 9. CAPITAL AND REVENUE EXPENDITURE <ul><li>Capital Expenditure </li></ul><ul><li>Capital expenditure refers to expenditure, the benefit of which is not fully derived in one year but spread over several periods. </li></ul><ul><li>Examples for capital expenditure are acquisition of assets for the purpose of earning, additions to fixed assets to improve its capacity, expenditure resulting in long-term benefit to the business, etc. </li></ul><ul><li>Expenses like Preliminary expenses, Research and Development expenditure, Interest paid during Construction period, etc., are taken to assets side of Balance Sheet and shown under ‘Miscellaneous Expenditure’. </li></ul>
  10. 10. Revenue Expenditure <ul><li>It is an expenditure incurred and the benefit of which is derived in the year in which the expenditure was incurred. </li></ul><ul><li>Examples are - raw materials, repairs, depreciation, rent, wages, etc. Such expenses are debited to Profit and Loss account. </li></ul><ul><li>Any incomes and gains are credited to Profit and Loss account. </li></ul><ul><li>Examples are - Commission received, Dividend received, Interest received, etc. Net Profit is transferred to capital account in the balance sheet. </li></ul>
  11. 11. LINKAGE BETWEEN TRIAL BALANCE, PROFIT & LOSS ACCOUNT AND BALANCE SHEET Trial Balance Items relating to Income And expenses Profit & Loss Account Result : Net Profit or Loss Items Relating to Assets & liabilities Balance Sheet Transferred to Balance Sheet Adjustments Double Entry Effect
  12. 12. Trading a/c of XYZ Co. for the year ending 31st March 2008 Date Particulars J.F Amount Rs Date Particulars J.F Amount Rs To opening Stock Add : Purchases Less : Returns To Wages To Carriage inward To Gas,water,Fuel, etc To packaging charges To other factory Expense Gross Profit By Sales Less : Returns By Closing Stock
  13. 13. Profit and Loss Account for the year ending 31st March, 2008
  14. 15. Profit and loss account may be divided into three components <ul><li>Trading Account: To reflect gross profit or loss arising out of trading and manufacturing operations. </li></ul><ul><li>Profit and Loss Account: To reflect the net profit or loss of the entire business after duly accounting for all administrative and selling expenses. </li></ul><ul><li>Profit and Loss Appropriation Account: To reflect the various appropriations made out of disposable profits like dividends, transfer to reserves etc. </li></ul><ul><li>Balance Sheet is just a statement of assets and liabilities. It is not an account like profit and loss account. Hence Debit (Dr.) or Credit (Cr.) do not figure in a balance sheet. </li></ul>
  15. 16. BALANCE SHEET AS ON 31 ST MARCH 2008 LIABILITIES Amount ASSETS Amount Share Capital Reserves & Surplus Non Current Liabilities Current Liabilities Total Fixed Assets Less: Depreciation Net Fixed Assets Investments Current Assets Total
  16. 17. ANALYSIS OF BALANCE SHEET <ul><li>Fixed Assets Examples are Machinery, Buildings, etc. </li></ul><ul><li>Current Assets Examples are Cash & Bank balances, Inventory, Accounts Receivables, etc. </li></ul><ul><li>Intangible Assets Example Goodwill. </li></ul><ul><li>Other Assets The assets that possess a tangible form but are not directly used in the operations of business. </li></ul><ul><li>Deferred Expenditures For example, research & development expenses of Rs.1,00,000 resulting in a new product may be written off over 5 years. </li></ul>
  17. 18. ANALYSIS OF BALANCE SHEET <ul><li>Net Worth Net worth equals the capital and reserves of the concern. </li></ul><ul><li>Non-current Liabilities Eg. Debentures, Long-term loans, etc. </li></ul><ul><li>Current Liabilities Bills payable, Accounts payable etc. </li></ul>
  18. 19. THANK YOU