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  • Financial statements is very useful for management, especially for taking financial decisions
  • Personal accounts and real account form part of balance sheet
  • Nominal accounts are taken in Profit & loss account
  • Purpose of financial statements are to know the financial result & to know the financial position
  • Only items of the current year should appear in the final accounts and not items of preceding or succeeding years
  • Personal incomes and expenditures should be separated from business incomes and expenditures
  • Income tax and drawings will not be debited to Profit and Loss account, as these are proprietor’s personal expenses.
  • Distinction should be made between capital and revenue items for placing those items in Balance sheet and in Profit and Loss account respectively.
  • All material information for judging the profitability or financial position should be disclosed.
  • Trading Account is prepared to ascertain the trading profitability of the business
  • Cost of Goods Sold (COGS) = Sales - Gross Profit or Opening stock + Purchases + Direct Expenses - Closing Stock
  • Profit & Loss account is prepared to ascertain the operating profit for the current accounting year

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