TS Grewal Class 11 Accountancy Chapter 15 Partnership Firms Accounting Solutions

Accountancy is an important topic for every student in Class 11 because it covers the fundamentals of accounting. Studying this subject in depth can help you gain a better understanding of the subject's concepts. A financial statement is a formal record that shows all the company's financial activity or a firm. These plans can quickly provide you with a roadmap for the future investment that your business needs in the coming years.

The book value of a company's assets and liabilities must be determined in order to determine its financial condition, profit or loss within a certain accounting period. An introductory financial statement starts from keeping day to day entries such as bookkeeping. Once the month is over, you can pull and organize the data from these records to get your financial statements altogether.

On the other hand, if you are someone who manages the loan department in a bank. Your customer's financial statement can show if they can pay you the loan amount back or not.

As a company preparing a financial statement is quite important as the report needs to be sent to external stakeholders for each quarter. As a result, a business or company has to prepare their report according to the government's general accounting principles.

Things to keep in Mind while preparing Financial Statements

There are four basic financial statements which you need to prepare for a company. All of them are studied in detail in Class 11 accountancy TS Grewal solutions solution Chapter 15 PDF.

In addition to this, every financial statement that you come across will show you a different story about the business. Each financial report contains a different combination of information that offers unique insights into a business. 

When you are preparing a financial statement, you must know it will reflect on real-life events that happened in your company. Being a profit or a loss, every single figure represents an event that has taken place in a company in that fiscal year. The word "financial statement" refers to a set of three major components. These are:

• Income statements 

• Statement of Financial Position 

• The balance sheet and income statement include schedules and notes.

You need to make lots of adjustments in preparation of financial statements class 11 accountancy TS Grewal solutions. You will also be introduced to lots of business and financial jargon, which makes reporting a bit hard to grasp in the first go. Thus, it is better to take your time with them before putting them in your report.

Keep footnotes handy at all times; many things go behind the scenes of financial reporting, which might be challenging to convey in numbers alone. 

Objectives of creating a Financial Statement

According to the financial statements Accountancy section, the main objectives for creating a financial statement are: 

• To offer a fair and accurate picture of the company's financial performance, including profits and losses at the conclusion of the financial quarter.

• To offer a true and fair picture of the business's financial situation, including assets and liabilities, after over.

Some Important Formulae 

Given below are some important formulae which are related to financial statements in Accountancy. 

• Gross Profit = Net Sales- Cost of Goods Sold (COGS)

• Net Sales = Total Sales- Sales Return 

• Cost of Goods Sold (COGS) = Opening Stock + Net Purchases + Direct Expenses – Closing Stock

• Net Purchases = Total Purchases- Purchases Return 

• Operating Profit = Net sales- Operating Cost

• Operating Profit = Gross Profit- (office and administration expenses + selling and distribution expenses)

• Net Profit = Operating Profit + Non operating income – Non operating expenses

Note: EBIT stands for Earnings Before Interest and Taxes (Earnings before interest and taxes)

Income Statements

The income statements are prepared by a business or an organisation to discover the correct and most accurate gross profits and losses, as well as the net profits and losses during an accounting period. The income statements are further broken down into two components or accounts:

• Trading Account: The trading account reflects the business's gross profits or losses over the course of a fiscal year. 

• Profit and Loss Account (P/L Account): The P/L Account reflects the business's net profits or losses over a given period. 

The total amount of money brought in from product or service sales is listed at the top of the income statement. Gross revenues or sales are common terms for this top line. It's called "gross" since it hasn't yet been adjusted for expenses. So the number is “gross” or unrefined. At the bottom, the income tax is deducted and it gives us the: net profit or net losses. (Net profit is also known as net earnings or net income.) This shows how much money the company made or lost during the accounting period, as well as if they made a profit.

Balance Sheet

The balance sheet is a summary of assets and liabilities prepared at the end of the fiscal year. This depicts the company's or organization's financial situation. All assets are listed on the right side of the balance sheet, while all liabilities are listed on the left. The following points should be remembered at all times  

• The order of the liquidity in the balance sheets are in which the assets are arranged. This means that the most liquid asset, such as cash in hand, is displayed first, followed by the least liquid assets, such as goodwill.

• Liabilities are arranged in the order of the timings. This means that liabilities that must be paid immediately or first, such as creditors, are presented first, while liabilities that must be paid later, such as long-term loans, are shown last.

The following formula summarized what a balance sheet shows:

ASSETS = LIABILITIES + SHAREHOLDERS' EQUITY

A company’s assets have to be equal, or “balance,” the sum of liabilities and shareholders’ equity.

Cash Flow Statement

After preparing both balance and income sheets, organisations also prepare a cash flow statement where the movement of cash is recorded. The cash flow statement is then divided into three categories:

• Cash Flow from operating activities

• Cash Flow from investing activities

• Cash Flows from financing activities

The company's balance sheet information and statement of income are used and reordered in the cash flow statement.

Read the Footnotes

In financial accountancy, it is extremely important to read the footnotes. Some of the points highlighted in this part are mentioned below:

• Significant accounting policies and practices – The accounting policies are required to be disclosed by the company as it is most important to understand their financial conditions and results. These situations frequently necessitate management's most difficult, subjective, or complex decisions.

• Income taxes - The footnotes outline the company's current and deferred income taxes in great detail. The data is organised by level – federal, state, municipal, and/or foreign – and the major factors that influence the company's effective tax rate are described.

• Pension plans and other retirement programs – The company’s pension and retirement plans along with any post-employment benefit programs are given in the footnotes. It contains specific information about the assets and costs of these programs and indicates whether and by how much the plans are over-or under-funded.

• Stock options – The footnotes also contain information about stock options granted to officers and employees, including the method of accounting for stock-based compensation and the effect of the method on reported results.

Important Adjustments at a Glance

The financial accountancy statement gives you the theatrical parts of the statement (income and position statements) of a business or an organisation. But combining both the theory and numerical part of the chapters helps in an easier understanding of what's required as they go hand in hand. 

So there you go; these were some of the important things you need to know about TS Grewal solutions Class 11 accountancy Chapter 15. For more information, you can download the Class 11 accountancy TS Grewal solutions solution chapter 15 PDF from the website and access it anytime you want. Even though both the chapters are lengthy, notes help us in memorizing the important parts.