1. Please tell me what are the two most basics financial statements prepared by the companies?

Financial statements are prepared in two forms:

•Balance Sheet : is a position statement as it refers to a particular date. It is also referred to as Statement of Sources and Application of Funds. It informs about the various sources used by the organization which are technically known as liabilities to raise the funds which are referred as assets.

•Profitability Statement also known as Profit and Loss Account. It is a period statement as it refers to a particular period.

2. Explain why do businesses prepare financial statements?

Basically to know the two facts about the business the financial statements are prepared:

-Financial position of the business at any given point of time in financial terms

-Result of operations carried out by the business organization during specific period.

3. Explain Profitability Statement?

Profitability Statement also known as Profit and Loss Account. It is a period statement as it refers to a particular period.

4. Do you know Balance Sheet?

Balance Sheet : is a position statement as it refers to a particular date. It is also referred to as Statement of Sources and Application of Funds. It informs about the various sources used by the organization which are technically known as liabilities to raise the funds which are referred as assets.

5. Explain how can the analysis of financial statements be carried out?

There are two ways in which analysis of financial statements can be carried out:

- Internal Analysis indicates the analysis carried out by the management of the company to enable the decision making process. This analysis is carried out in the legal or statutory matters in which parties have the access to the books and records of the company. This is carried out in the legal or statutory matters.

- External Analysis indicates the analysis carried out by the creditors, prospective investors and other outsiders who do not have the access to the books and records of the company.

6. Tell me what techniques are used for the analysis and interpretation of financial statements?

The techniques used for the analysis and interpretation of financial statements are:

- Ratio Analysis is a systematic technique of analysis and interpretation of financial statements i.e Profitability statement and Balance sheet with the help of various ratios so that the strengths and weakness and the financial position of the firm can be determined. This technique is not a creative technique as the information already given in the financial statements is used.

- Funds Flow Analysis : is the analysis in which Funds flow statement is prepared in order to determine the sources and application of funds. Fund flow statement is commonly used in business plans and proposals to show investors about the flowing of their funds through the organization. This is not used in annual reports. It is used by bankers who want to know how borrowed funds will flow through company operations. It is used to show the management how the cash is flowing through the company operations.

- Cash Flow Analysis is the analysis in which Cash Flow Statement is prepared which shows changes in inflow & outflow of cash during the period. Cash flow statement is an analysis tool used by large and medium scale companies for Inflow and Outflow of money during a particular period of time.

7. Explain Limitations of Financial statements?

Limitations of Financial statements are:

- Financial statements are available after a specific period of time is over.

- They give the information about the historic facts which may not be sufficient from the decision making point of view.

- Financial statements which are based on financial accounting are interim reports and cannot be the final ones.

- While preparing Balance sheet various assets and liabilities are shown at historical prices as they are made on the going concern principle which may affect the profitability statement as well as in the incorrect provision for depreciation.

- Only those transactions are recorded which can be expressed in monetary terms

- Financial statements prepared may be useful for normal users in the normal conditions.

- Financial statements by them self does not mean anything unless the information stated therein is properly studied, analyzed and interpreted.

8. Explain Reserves and Surpluses?

Reserves and Surpluses indicate that portion of the earnings, receipt or other surplus of the company appropriated by the management for a general or specific purpose other than provisions for depreciation or for a known liability. Reserves are classified as: Capital Reserve and Capital Redemption Reserve.

9. Explain Share Capital?

Share Capital is that portion of a company's equity that has been obtained by issuing share to a shareholder. The amount of share capital increases as new shares are sold to public in exchange for cash.

10. What is Cash Flow Analysis?

Cash Flow Analysis is the analysis in which Cash Flow Statement is prepared which shows changes in inflow & outflow of cash during the period. Cash flow statement is an analysis tool used by large and medium scale companies for Inflow and Outflow of money during a particular period of time.

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