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Financial Statements

Delivered
by
Mohd. Qamar Tanveer

Industrial Engineering (KME503)

1.
Introduction

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Introduction
» Financial statements are the end products of the accounting process, which
reveals the financial results of the specified period and financial position as on
date. It is the basic and formal annual report through which a business
communicates financial information to its various user groups.

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Nature of Financial Statement

» Recorded facts

» Accounting conventions

» Postulates(Assumptions)

» Personal Judgements

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2.
Objective

Industrial Engineering (KME503)

Objectives
» To provide reliable financial information about economic resources(assets) and
obligations(liabilities) of a business firm
» To provide information about the earning capacity of the business firm
» To provide reliable information about the changes in resources and obligations
arising out of business activities.
» To disclose , the various accounting policies followed in preparing the financial
statement to its various user groups.
» To disclose, to the extent possible, other related information to financial
statement that is relevant to the needs of the users.

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3.
Characteristics & Importance

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Characteristics of Ideal Financial Statement

» Relevancy
» Reliability
» Understandability
» Comparability

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Importance of Ideal Financial Statement

» Importance to management
» Importance to Creditors
» Importance to Bankers
» Importance to Investors
» Importance to Government

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4.
Limitation

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Limitation of Ideal Financial Statement

» Provide only interim reports
» Aggregate information
» No qualitative information
» Personal biasness
» Historical cost

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5.
Components

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Components of Financial Statement

» Income Statement
» Manufacturing Account
» Trading account
» Profit and loss account
» Statement of Financial Position
» Balance sheet

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Manufacturing Account
» Those Concerns which convert the raw materials into finish goods are
required to find out the cost of goods manufactured besides gross and
net profit of the concern. These are manufacturing cum trading
concerns. In order to have full information about the cost of goods
manufactured, the concerns firstly prepare Manufacturing Account &
then prepare the Trading & Profit & Loss Account.
» Object of Manufacturing Account :
» Cost of finished goods produced and
» Constituent items thereof such as cost of material consumed, productive
wages , direct & Indirect expenses.

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Profit and Loss Account

» According to R. N. Carter : “ A profit and loss account is an account into
which all gains and losses are collected, in order to ascertain the excess
of gains over the losses or vice-versa.”

» Net Profit=Operating Profit – Non operating expenses + Non operating

Income

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Profit and Loss Account

» Profit and Loss Appropriation Account is an account which is prepared
with an objective of appropriating or distributing the net profits among
the partners.
» Features:
» It is prepared after the Preparation of Profit & Loss A/C
» It is an extension of Profit & Loss A/C.
» It is Prepared by partnership firm ( and Companies) for appropriations ( distribution)
of profits among partners.
» It discloses how the net profit for an accounting period has been appropriated.
» It is prepared in terms of the partnership Deed or the Partnership Act.

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Balance Sheet
» The balance sheet is a snapshot of the firm’s assets and liabilities at a
given point in time
» Assets are listed in order of liquidity
» Ease of conversion to cash
» Without significant loss of value
» Balance Sheet Identity
» Assets = Liabilities + Stockholders’ Equity

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Balance Sheet
Current Assets


Cash & Securities Current Liabilities
Receivables Payables
Short-term Debt
Inventories
+
+
= Long-term Liabilities

Fixed Assets +
Tangible Assets
Shareholders’ Equity
Intangible Assets

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Characteristics of Balance Sheet

» The balance sheet is a statement not an account.
» The word ‘to’ and ‘By’ are not used before the names of the accounts
shown in the balance sheet.
» The total of the two sides of the balance sheet must be equal.
» It Shows the financial position of the business according to the going
concern concept.
» The balance sheet does not have Debit or Credit Side. The two sides of
the balance sheet are called “Assets” and “Liability”

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THANKS!

Any questions?

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