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Unit 2: Understanding Corporate Financial Statements
Sukhpreet Kaur, Lovely Professional University

Unit 2: Understanding Corporate Financial Statements Notes

CONTENTS

Objectives
Introduction
2.1 Types of Financial Statements
2.2 Form and Contents of Financial Statements
2.2.1 Trading and Profit & Loss Account

2.2.2 Balance Sheet
2.3 Uses of Financial Statements
2.4 Limitations of Financial Statements
2.5 Summary

2.6 Keywords
2.7 Review Questions
2.8 Further Readings

Objectives

After studying this unit, you will be able to:

Know the types of fi nancial statements
Illustrate the form and contents of fi nancial statements
Describe the uses and limitations

Introduction

Financial statements are also known as financial reports. These are formal records of the fi nancial
activities of a business, person, or other entity. Since we are referring to the corporate fi nancial

statements, the corporate financial reports refer to the records of a corporate house.

Corporate financial statements provide an overview of a business’s financial condition in both

short-term and long-term. All the relevant financial information of a business enterprise, presented
in a structured manner and in a form easy to understand, is thus called the fi nancial statement.
These statements comprise Balance Sheet or Position Statement and Profit and Loss Account

or Income Statement. Of course, to give a full view of the financial affairs of an undertaking, in

addition to the above, the business may also prepare a Statement of Retained Earnings and a
Cash Flow Statement.
!
Caution In India, every company has to present its fi nancial statements in the form and
contents as prescribed under Section 211 of the Companies Act, 1956.

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