financial statements

2.  A stakeholder is any person
associated with the business.
Stakeholders are of various types:
 Monetary or non- monetary
 Active or passive
 Direct or indirect
 Internal and external

3. NAME INTERNA
L/EXTERN
AL USERS
OBJECTIVE TYPE OF INFORMATION
Current
owners
Internal To make investment in the
business
Likes to know the profit ,
current financial position
Manager Internal For a career.Act as the agent of
the owners and employees
Likes to know the profit ,
current financial position
Governme
nt
External Regulatory role ,tries to lay
down rules in the best public
interest.
To protect rights of all
stakeholders .
Also interested in the
profitablity
Prospectiv
e owners
External Expecting to make investments
in the business with a view to
make his investment and wealth
grow
Likes to know about past
profits and financial
position as indicative of
likely future performance
Bank External Interested in safety of the
principal as well as the periodic
return
Interested to know the
adequacy of profits only as
an assurance of return

4.  A very important distinction in accounting is
between capital and revenue items. The revenue
items form part of the trading and profit and loss
account ,the capital items help in the preparation
of a balance sheet.

5. Whenever payment and/or
incurrence of an outflow are made
for a purpose other than the
settlement of an existing liability is
called expenditure.

6. CAPITAL
EXPENDIT
URE
DEFERRED
REVENUE
EXPENDITURE
REVENUE
EXPENDIT
URE

7.  If the benefit of an expenditure extends upto one
accounting period , it is termed as revenue
expenditure.
 They are incurred for the day –to day conduct of
the business.
 Example- Payment of salary,rent etc.,

8.  If the benefit of expenditure extends more than
one accounting period , it is termed as capital
expenditure.
 Example-payment for furniture, machinery ,etc.,

9.  Revenue expenditures which are are likely to give
benefit for more than one accounting period , are
known as deferred revenue expenditure.
 Example – heavy expenditure on advertisement

10. Capital expenditure Revenue expenditure
Increases earning capacity of
business
Maintain the earning capacity of
business
Incurred to acquire fixed assets for
operation of business
Incurred to conduct day-to-day
activities of business
Capital expenditure is of non-
recurring nature
Revenue expenditures are recurring
in nature
Benefits are extended to more than
one accounting year
Benefits are limited to within one
accounting year
Recorded in Balance Sheet of the
business after deducting
depreciation
Recorded in trading and profit and
loss account after making
adjustments

11.  Capital receipts
 If the receipts imply an obligation to
return the money, it is called capital
receipts.
 Example –additional capital brought in
by the owner, loan taken from bank ,sale
of fixed asset , etc.,

12.  Revenue receipts
 If a receipt does not incur an obligation to
return the money or is not in the form of a sale
of asset, it is called revenue receipts.
 Example –sales made by the firm, interest on
investment received by the firm etc.,

13.  All items of revenue are shown in the trading
and profit and loss account .
 All items of capital nature are shown in the
balance sheet.
 If any of revenue nature is treated as capital
item or vice-versa ,the ascertainment of profit
or loss will be incorrect.

14. OBJECTIVES
 The basic objectives of preparing financial
statements are:-
 A) To present a true and fair view of the
financial performance of the business
 B)To present a true and fair view of the
financial position of the business.

15. Financial Statements prepared by the firm are of
two types
 Trading and Profit and Loss Account
(Income Statement)
 Balance Sheet (Position Statement)

16.  Trading and Profit and Loss Account is prepared to
determine the profit earned or loss sustained by the
business enterprise during the accounting period.
 It is a summary of revenues and expenses of the
business and calculates the net figure termed as profit
or loss.
 Profit is revenue less expenses .If expenses are more
than revenue, it is termed as loss