Meaning of Financial statements class 11 Financial statement is the last step or end product of the accounting process. Financial statements mean such documents or statements in which the related financial information is described. Mainly two details are included under financial statements: (1) Income Statement, (2) Balance Sheet. In the word of Jon N Myer. “The financial statement summarises the accounts of the business concerns and the income statement reflects the activities of a given period of time.” Financial statements can be prepared quarterly, half-yearly or annually In the case of a sole proprietorship, the following are included in the financial statements: 1. Trading Account — It shows the gross profit or gross loss of a business enterprise for a particular period. 2. Profit and Loss Account — It shows the net profit or net loss of the business activities of the business enterprise for the accounting period. 3. Balance sheet — The balance sheet shows the financial position of the business (i.e. assets and liability) shows. Thus these details are also called the final accounts of the business. The following are included in the financial statements of the company (1) Statement of Profit-Loss or Profit-Loss Account (Profit & Loss Statement or Profit & Loss Account) It is also called Income Statement. (2) Balance Sheet and if required (3) Cash Flow Statement, if required, with supporting comments.

1. Financial statements class 11
Meaning of Financial statements class 11
Financial statement is the last step or end product of the accounting process. Financial
statements mean such documents or statements in which the related financial information is
described. Mainly two details are included under financial statements: (1) Income Statement,
(2) Balance Sheet.
In the words of Jon N Myer. “The financial statement summarises the accounts of the
business concerns and the income statement reflects the activities of a given period of time.”
Financial statements can be prepared quarterly, half-yearly or annually
In the case of a sole proprietorship, the following are included in the financial statements:
1. Trading Account — It shows the gross profit or gross loss of a business enterprise for a
particular period.
2. Profit and Loss Account — It shows the net profit or net loss of the business activities of
the business enterprise for the accounting period.
3. Balance sheet — The balance sheet shows the financial position of the business (i.e.
assets and liability) shows.
Thus these details are also called the final accounts of the business.
The following are included in the financial statements of the company
(1) Statement of Profit-Loss or Profit-Loss Account (Profit & Loss Statement or Profit & Loss
Account) It is also called Income Statement.
(2) Balance Sheet and if required
(3) Cash Flow Statement, if required, with supporting comments.
Thus these details are also called the final accounts of the business.

2. The purpose of accounting is the business results for a particular period; For example, to
find out the profit-loss and to get information about the economic or financial condition of the
business at the end of the year. To fulfill these objectives, the accounts and statements
which are prepared at the end of the accounting year are called Final Accounts. In this way,
the accounts which are prepared for drawing annual conclusions and for ascertaining
profit-loss and business position are called final accounts.
According to Pickles and Dunkerley, “Final accounts include (a) Trading Account, (b) Profit
& Loss Account, (c) Profit & Loss Appropriation Account, and (d) balance sheet.
Objectives of Financial Statements
To determine the profit or loss earned by the business firm in a given period and to
determine its financial position at a given point of time is considered as the first objective of
financial statements. The various objectives and importance of financial statements, in brief,
are as follows
1. Providing financial data about financial resources and liabilities of the organisation.
2. Providing statistics of Operating Profits and Net Profits of the organisation and their
financial status shows an effect on their financial position.
3. To provide adequate and reliable information to the parties interested in the financial
statements.
4. To reveal the true and fair view of the economic condition of the business.
5. To present the basis for future activities.
6. Providing assistance in business management.
7. To be helpful in comparative analysis.

3. Importance of Financial Statement
Following are the importance of financial statements:
(1) Financial statements help in determining the cost of goods sold or ‘cost of sales’.
(2) There is convenience in finding out gross profit and net profit or net loss. This shows the
income-earning capacity of the institution.
(3) The balance sheet (which is an important part of the financial statements) shows the
financial position of the business. If the assets are more than the external liabilities, then it is
understood that the financial position of the business is strong.
(4)Knowledge of capital is obtained from financial statements.
( 5.) Financial statements help in comparing the profit of the current year with the profit of the
previous year.
( 6.) Various items of the balance sheet can be compared with the figures of the previous
year to assess the changes in the financial position.
( 7.) Financial statements can be used to forecast the future of the business.
(8.) Can be presented as evidence to the tax authorities.
Users of Financial statements
Financial statements provide financial information to a variety of interest groups (users) in a
business entity. The important users of financial statements and their utility of financial
statements are as follows:

4. (1). Owners / Shareholders — The owners or shareholders of the business are interested
in the progress and welfare of the business. They want to know the profitability and financial
soundness of the business so that they can take appropriate decisions. Therefore, the
owners or shareholders of the business analyse the financial statements to assess the
current and future profit earning potential and future prospects.
(2). Management — Managers are responsible to the owner of the organisation. Their main
function is to run the enterprise efficiently and take decisions. Management needs financial
statements for policy making. Through the financial statements, they evaluate themselves
and their managerial knowledge. In fact, financial statements are the basis of managerial
financial policy, planning and control.
(3). Bankers and other Financial Institutions Investors — Banks and other financial
institutions act as investors. These institutions are interested in financial analysis. These
institutions analyse the profit earning capacity and financial condition of the institution on the
basis of accounting statements before giving loans, so that the loans given by them can be
safe.
(4). Government or Regulatory Authority — Government or regulatory authorities also use
the financial statements of various industries and business entities. The government studies
the financial statements from this point of view, so that it can know whether the business
organisations are in progress or not, whether the construction of the financial statements is
legal and regular or not. The tax authorities use the financial statements to determine
income tax and sales tax, etc.
(5). Creditors — Creditors are of two types – Short-term Creditors and Long-term Creditors.
Short-term creditors are interested in the short-term position of the business. They get
information about the liquidity of the business by analysing the financial statements. They
want to know whether they will be able to pay for the goods sold by them on time or not.
Long-term lenders want to study whether
(i) the firm will be able to make regular interest payments on long-term loans, and
(ii) whether it will be able to pay the loans when they become due.
(6). Employees — On the basis of the financial statements, the employees of the
organisation can decide how much bonus or other facilities will be available from the benefits
of the organisation and how much increase in wages and salary is possible.
(7). Other Users — There are also some other users of financial statements, such as
professional associations, consumer associations, researchers or researchers, etc.
Preparation of Financial Statements
The financial statements or final accounts are prepared from the balances of various
accounts shown in the balance sheet. In the balance sheet, the loan balance (debit balance)
and credit balance (credit balance) of various accounts of the ledger are shown. Final
accounts are prepared from trial balance. The general rule is that the items shown in the trial

5. balance are shown in only one of the trading accounts or profit and loss accounts or the
balance sheet, as per rules.
The items in the debit balance of trial balance are either (i) assets or (ii) revenue expenses.
Revenue expenses (i.e. items with debit balance) are shown on the debit side of a Trading
Account or Profit and Loss Account. Capital items (such as machinery, land, building, etc.)
and other current assets which have debit balances are shown on the assets side of the
balance sheet.
The balances of trial balance represent:
(i) Capital and Liabilities,
(ii) Provision and Reserves, and
(iii) Revenue Receipts and Gains. Of these, capital and liability are shown on the left hand
side of the balance sheet. Reserves and provisions are also shown on the liability side, but
some provisions are deducted from the value of the asset concerned.
The items of income and profits are shown in the trading account or profit and loss account.
Base of final account
The basis of final account is Trial Balance. Trading account, profit and loss account and
balance sheet are prepared from trial balance. Therefore, it is a necessary condition for the
preparation of final accounts that trial balance is first prepared from the balances or balances
of the ledger.
Important Not :
(1) Items shown in trial balance will be shown in any one of the trading account, profit and
loss account and balance sheet, that is, they will not be accounted for in two accounts.
(2) Items on the debit side of trial balance either in Trading A/c’s Dr. Side, or P. & L. A/c of
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Dr. Side and the remaining items which are not shown in both of them are shown in the
Asset Side (i.e. right side) of the Balance Sheet.
(3) The items on the credit side of trial balance are either Cr. Side or in P. & L. A/c’s Cr. Side
and the remaining items that both of them are not shown in the accounts, are shown in the
liabilities side (i.e. left side) of the Balance Sheet.
Frequently Asked Questions

6. Qs 1. What are 3 types of financial statements Class 11 ?
Ans. There are 3 types of Financial statement class 11
● Income statement
● Balance sheet
● Statement of Cash flows
Qs 2. Define financial statements class 11 ?
Ans. Financial statements in Class 11 are formal records that present a company’s financial
activities and performance. They include the balance sheet (snapshot of financial condition),
income statement (revenues, expenses, net income), statement of cash flows (cash inflows
and outflows), and statement of retained earnings (changes in retained earnings). These
statements help assess profitability, financial position, and cash flow, providing transparency
to stakeholders like investors and creditors.
Read more : Triple / Three Column Cash Book
Read more : Cash Book Class 11
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