Question

Please describe the difference between the substance and form of financial statements. Give an example of each.

Answer 1

Substance :

Substance of a financial statement means recording the transaction in its original nature. It emphasis the content of the transaction. Whatever is the actual nature of transaction is its substance.

Form :

Form is the way the transactions are presented or recorded in a Financial statement.

· Generally substance is related to the content of transaction in a financial statement. On the other hand, form relates to its presentation.

· Usually, the substance of a transaction and form of the transactions are same.

· However, in some instances, the substance may differ from the form.

Example :

1. In case 2 firms had exchanged their inventories, the substance here is exchange, Whereas, the form is a contract of sale and a contract of purchase