Page 201 - DMGT104_FINANCIAL_ACCOUNTING

Unit 8: Financial Statements

Self Assessment Notes

Fill in the blanks:
10. The …………………… will show the true and proper picture of the business only when all
the transactions of the business are properly recorded.
11. …………………… prepared under this order is the reverse of the Balance Sheet prepared
in liquidity order.
12. Order of presenting the assets and liabilities in the Balance Sheet is called ……………………
of assets and liabilities.
8.7 Summary

 Final accounts include the Trading and Profit & Loss Account and Balance Sheet.
 Trading and Profit & Loss Account is prepared to calculate the net profit earned by business
during a period.

 Balance Sheet of a business is prepared to disclose the financial picture of the business.
 The Trading Account shows the gross profit which is the difference of sales and cost of sales.
 Profit & Loss Account shows the net profit which is computed by matching the total
revenues and expenses of the business.

 Balance Sheet is a statement which has two sides – Liability side and Assets side.
 Before preparing the final accounts of the business some adjustments are also done
(if required).

8.8 Keywords

Financial Statements: These include the Trading and Profit & Loss Account, and Balance Sheet of
the business.
Gross Loss: It is the excess of cost of sales over sales.
Gross Profit: It is calculated by comparing the sales and cost of sales. It is the excess of sales over
cost of sales.
Net Loss: Excess of expenditures over revenues is called net loss.
Net Profit: It is the excess of revenues over expenses. It is depicted by P& L A/c.

Trial Balance: It is the list of accounts taken from the ledger.
8.9 Review Questions

1. What do you mean by errors? Which type of errors can not be detected by Trial Balance?
Explain.
2. What do you mean by Trading Account? Give the proforma of Trading Account and
explain why it is prepared.
3. What is the importance of Balance Sheet? Give a form of Balance Sheet in Liquidity order
with imaginary examples.
4. What do you mean by adjustment? Explain the different adjustment entries.

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