Page 27 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes
To Office Rent 8,000 By Gross Profit (brought from 40,000

To Printing & Stationary 4,000 Trading A/c)
To Bad Debts 4,000

To Net Profit (carried to Capital A/c) 24,000
40,000 40,000

Balance Sheet
(as on 31st December, 2007)
Liabilities ` Assets `
Capital 1,72,000 Land and Buildings 1,20,000

(+) Net Profit 24,000 1,96,000 Plant and Machinery 80,000
Sundry Creditors 1,20,000 Sundry Debtors 20,000
Stock on 31st Dec., 2007:
Raw Materials 20,000
Work-in-Progress 16,000
Finished Goods 40,000
Cash in Hand 20,000
3,16,000 3,16,000

Self Assessment

Fill in the blanks:
6. ………………… is the comparison of sales and purchase.
7. The excess of credit side over debit side is called …………………

8. The Balance Sheet depicts the ………………… of the business on a fi xed date.
9. Order of presenting the assets and liabilities in the balance sheet is called …………………
of assets and liabilities.
10. If in the business some goods are being manufactured along with the trading activities, a
………………… is also prepared.

2.3 Uses of Financial Statements

The uses of financial statements vary from entity to entity. For different people, they have
different uses. Though no complete list can be provided for their uses, presented under is a brief
list of benefits they give to their users:

1. For Equity Investors and Lenders: The existing equity investors and lenders to a company
need to monitor their investments and to evaluate the performance of management. For

this purpose, they have no aid else than the financial statements of a fi rm.

The prospective equity investors and lenders use financial statements to decide whether or
not to invest in an organisation.
2. For Finance Specialists: Investment analysts, money managers, and stockbrokers, use

financial statements to make buy/sell/hold recommendations to their clients.
3. For Credit Rating Agencies: Rating Agencies such as Moody’s and Standard & Poor’s

assign credit ratings on the basis of the financial statements of a company.

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