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Unformatted text preview: CHAPTER-I FINANCIAL STATEMENTS LEARNING OBJECTIVES After studying this chapter, you will be able to: Explain the meaning of financial statements of a company; Describe the form and content of balance sheet of a company; Prepare the Balance Sheet of a company as per Schedule VI Part I of the Companies Act 1956. Know the major headings under which the various assets and liabilities can be shown. Explain the meaning, objectives and limitations of analysis using accounting ratios Calculate various ratios to assess the solvency, liquidity, efficiency and profitability of the firm. Interpret the various ratios for inter and intra-firm comparison. define Cash Flow Statement know its objectives understand its uses [Uses of Cash Flow Statement] explain the Limitations of Cash Flow Statements classify the Cash Flows as . cash flow from Operating Activities . cash flow from Operating . cash Flow from Financing Activities make a format of Cash Flow Statement as per Revised AS-3. prepare Cash Flow Statement in a Prescribed Format. 1.0 The financial statements are the end products of the accounting process which summaries the financial position and performance of a business concern in an organized manner. Financial Statements provide a summarized view of the operations of the business. They serve as an important medium in communicating accounting information to various users of accounts. If you can read a cricket scoreboard, you can learn to read basic financial statements. Lets begin by looking at what financial statements do. 1.1 Financial Statements of a company Financial Statements show you where a companys money came from, where it went, and where it is now. Financial statements are the basic and formal annual reports through which the corporate management communicates financial information to its owners and various other external parties which include- investors, tax authorities, government, employees, etc. There are two main financial statements. They are: (1) balance sheets; (2) income statements. Balance sheets show what a company owns and what it owes at a fixed point in time. Income statements show how much money a company made and spent over a period of time. 1 Lets look at the Balance Sheet in more detail. USERS OF FINANCIAL STATEMENTS 1.2 Investors and potential investors The present investors want to decide whether they should hold the securities of the company or sell them....
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- Fall '10