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Meaning of Financial Statements

Meaning -
At the end of the financial year or at the end of the accounting period, Financial Statements are prepared to know profit or loss and also the financial position of the business. These statements are presented to users of accounting information for decision - making. A complete set of financial statements include a. a balance sheet,b. a profit and loss account and c. schedules and notes forming part of balance sheet. In many countries, Financial Statements also include a statement of changes in financial position (which may be presented as cash flow statement or funds flow statement).

Financial Statements are prepared from the Trial Balance drawn taking the ledger balances and cash book balances. The Trial Balance tests the arithmetical accuracy of the entries effected. On being satisfied by this, the owner of the business likes to know the ultimate results of operating the business. i.e.,
  1. How much profit the business has earned in a particular period (generally one year)? Profit and Loss Account (Income Statement) shows the profit earned during the year and
  2. What is the financial position of the business at the end of a particular period (generally one year) Balance Sheet (Position Statement) shows the financial position on a particular date.
These two financial statements are “Final Accounts”.

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