DK Goel Class 11 Accountancy Solutions: Chapter 21 Overview

The following statements are included in Financial Statements: 

• Trading and Profit and Loss Account (or Income Statement) that shows an organization's financial performance.

• A balance sheet shows the company's financial status at the end of an accounting year. 

• Notes to accounts, also known as schedules and notes, are included in the balance sheet and income statement to provide details on various items mentioned in both statements. 

• A cash flow statement is a Financial Statement that shows how much money is flowing through an organization.

 Importance of Financial Statement Preparation 

1. Importance to Management

As the magnitude and complexity of factors affecting business operations grow, modern business enterprises require a scientific and analytical approach to management. For these purposes, the management team requires up-to-date, accurate, and methodical financial data. Financial Statements assist management in understanding the company's position, progress, and prospects in relation to the industry.

Trading and Profit and Loss Account: This is the income statement that shows how much money was made or lost at the end of the current accounting year. Profit or loss is determined by the difference between revenue and expenditure.

2. Importance to Shareholders

In the case of corporations, management and ownership are separated. Shareholders are unable to participate in the day-to-day operations of a company. The results of these operations, however, should be communicated to shareholders in the form of Financial Statements at the annual general body meeting.

These statements inform shareholders about the management's efficiency and effectiveness, as well as the company's earning capability and financial soundness.

Prospective shareholders can determine the company's profit-earning capacity, current status, and future prospects by evaluating the Financial Statements and deciding whether or not to invest in it.

3. Importance to Lenders/Creditors

Financial Statements serve as a useful guide for a company's current and future suppliers, as well as potential lenders.

These organizations can learn about a company's liquidity, profitability, and long-term solvency status by conducting a comprehensive study of its Financial Statements. This would assist them in determining their next course of action.

4. Importance to Labors

Workers are entitled to bonuses based on the magnitude of the profit as stated by the audited profit and loss statement. As a result, P & L a/c becomes extremely crucial to the employees. The size of profits and profitability gained are also important factors in pay negotiations.

5. Public Importance

Business is a social entity. Various groups in society are interested in the status, success, and possibilities of a corporate enterprise, even if they are not directly involved in it.

Financial analysts, lawyers, trade associations, trade unions, financial press, research scholars, and teachers, among others, are among them. People may only examine, judge, and remark on a company enterprise using these publicly available financial accounts.

DK Goel Solutions Class 11 Chapter 21 – Financial Statements

Types of Financial Statements:

Any business maintains the following Financial Statements -

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1. Balance sheet at the end of the accounting period.

2. Statement of profit and loss of a company.

3. Cash Flow Statement.

Common Terms:

Class 11 DK Goel Solution Accountancy Chapter 21 by Vedantu lists commonly used terms under the Financial Statements. Some of them are as follows:

Balance Sheet: A balance sheet is a Financial Statement reflecting a company's assets, liabilities, and shareholders' equity over a particular period of time. It is a Financial Statement about how and what the organization owns and what it owes and also the amount invested by shareholders.

Assets = Liabilities + Shareholders Equity.

Statement of Profit and Loss of a Company

A profit and loss statement, called P&L, is also referred to as an  ‘Income Statement’ or ‘Statement of Operations’. It is a financial record that contains the summary of the following over a given period of time.

• Revenues

• Expenses

• Profits/losses

It is a detailed statement that shows a company's prospects for survival, growth, sales, expenses management and also the most important reason for it to continue to be in business; create profits.

Cash Flow Statements: Very evident from its name, a cash flow statement is a summary of the inflow and outflow of cash. Cash availability is the basic requirement, like a ‘must-have’ to meet expenses and also in case the company needs to make a purchase. This financial record shows changes over time rather than the financial status at a point in time.

Practical Questions: NCERT solutions Chapter 21 Class 11 Accountancy DK Goel give a pictorial memory to the students as they clearly distinguish the various types of entries and the corresponding heads they need to be entered while preparing various Financial Statements e.g. the format given below can be followed. (Table will be updated soon)

Working Notes: At the end of solutions to practical questions, Accountancy Class 11 Chapter 21 DK Goel Solutions provide working notes. These are specific questions related to notes that help in understanding the reason for a particular inclusion/exclusion or calculation arrived at. The calculations are always based on rules of Accountancy, which are cited clearly for students to comprehend the application of the rules.

Example of a Working Note:

• Loss by fire is a non-operating expense, therefore,

• Operating Profit = Net Profit - Non-Operating Income Non-operating Expense.

Preparing from Accountancy Class 11 Chapter 21 DK Goel Solutions:

The Accountancy textbook prescribed by the board is a resource that should be thoroughly read. Once you have understood the main concepts, we suggest you download DK Goel Class 11 Accountancy solutions Chapter 21 Financial Statements by Vedantu. This is a very comprehensive resource to refer for quick revision and solved practical questions.

• Make notes in your handwriting while preparing. This helps consolidate what you have learnt.

• Remember the golden rules for Accountancy.

• Refer to Class 11 DK Goel Solutions Chapter 21 every two-three days for regular practice.

Chapter 21 Class 11 Accountancy DK Goel Solutions serve as good resources for quick revision and contain topics like rules for preparing balance sheets, income statements, and cash flow statements. The solution for practical questions will help you in understanding the details of differentiation between various entries according to different corresponding headings they need to be entered under.