Class 11 DK Goel Solutions Chapter 21 - Financial Statements
Chapter 21 Financial Statements is important in the Accountancy Syllabus Class 11. As businesses operate and grow, business transactions take place. These are financial transactions that are the inputs for any business and the reason why any business exists in the first place. These need to be recorded as and when these occur.
We have already read in detail about how these transactions find their way into Journal Entries and then how these become a part of larger financial records through the ledger. These important financial records are what we are going to study with the help of DK Goel Solutions Class 11 Accountancy Chapter 21 Financial Statements.
Financial Statements are the formal records of all business transactions made regularly to form a repository of financial information. These records help the management understand and communicate financial information to its various stakeholders viz: owners and various other external parties.
Statements included in Financial Statements
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
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.
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.
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.
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.
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 -
(the image will be uploaded soon)
Balance sheet at the end of the accounting period.
Statement of profit and loss of a company.
Cash Flow Statement.
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.
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.
FAQs on DK Goel Solutions Class 11 Accountancy Chapter 21
1. What are the features of a Financial Statement?
The features are as follows:
The Financial Statements must be appropriate for the purpose for which they are being created. Unnecessary and perplexing disclosures should be avoided, and all relevant and material disclosures should be made public.
They should provide complete and accurate information on a company's performance, position, progress, and prospects. It's also crucial that people who create and present the financial figures don't let their personal biases cloud the truth.
They should be easy to compare to earlier statements or statements from similar companies or industries. Financial Statements become more useful when they can be compared.
They should be produced in a classified format to allow for a more thorough and meaningful analysis.
Financial Statements must be created and provided in a timely manner. The relevance and utility of these declarations would be diminished if they were prepared with undue delay.
The Financial Statements must be widely accepted and comprehended. Only by following specific "generally recognised accounting standards" in their preparation can this be accomplished.
2. What is the significance of the Financial Statement chapter?
Part I of Financial Statements is separated into two chapters, and we have supplied revision notes for part I in this discussion. This chapter is as significant and as large as the students have studied and comprehended it to be. Students appear to be having difficulty with this chapter since they are unsure where to record which items.
Financial Statements is also a crucial chapter for students in class 12 and beyond who are studying this topic. These Financial Statements are the year-end Financial Statements that all firms prepare at the end of each fiscal year. Students will lose marks if they post incorrectly.
3. What is expenditure?
Expenditure refers to any payment made for a reason other than to settle existing liabilities. Payment expenditures are classified as follows based on the type of the payment:
Capital expenditures or non-recurring expenditures are those extended over more than one accounting year For example if you spend money to buy machinery, the advantages of that machinery would most likely last longer than one accounting year, hence this is a capital expenditure. Capital expenditures are reported on the Balance Sheet's assets side.
Revenue Expenditures are regular expenses incurred for the smooth operation of a business, the benefits of which are limited to a single accounting year. For example, personnel salaries, advertising costs, and so on. These are displayed on the Trading and Profit and Loss Account's debit side.
4. What is the need to create a balance sheet?
The need to create a Balance Sheet is listed below.
It aids in determining the nature and book value of various assets after an accounting period, such as fixed assets, investments, current assets, and so on.
It aids in determining the nature and quantity of various liabilities owed by a business, such as long-term liabilities, current liabilities, provisions, and so on.
It provides crucial information regarding a company's capital investment. Additional capital spent throughout the accounting period, owner's withdrawals, and profit (or loss) added to (or subtracted from) the business's capital.
It aids in determining a company's solvency.
It reveals a company's genuine financial status at a certain period in time.
It establishes the foundation for keeping fresh books for the next accounting period.
5. Will Vedantu provide all solutions?
Vedantu is an online platform that has the solution to all the questions CBSE and ICSE academics include. Students can find sample papers for practice on the website of Vedantu. Along with this, additional study materials are also available on the website which can be downloaded free of cost. Vedantu also hosts live sessions with experts from all over the country on its platform where students can clarify their doubts.
Vedantu aims to provide global online exposure to the students for their overall development.