Question

After the trial balance is prepared, the business owner can prepare the financial statements. List and discuss the purpose of each financial statement, the order in which the financial statements are prepared, and the information included in each financial statement (information also in Chapter 1, illustration 1.9).

In addition, consider the fact that many people feel that financial statements should be expanded beyond the traditional components (income statement, statement of owner's equity, statement of cash flows and balance sheet). Should financial statements be expanded to include a company's ecological and social performance?

Answer 1

Page-1 According to the given information in the question provided the following 4 statements are the basic firancial statements prepared after trial balance is completed: o Income statement: - Income statement presents Perfosmation on financial results over a period of time. y It communicates revenue and other income generated and expenses incurred during the period. Net income = Revenue & other income & Expenses. y Basic & diluted Eps is presented on the face of the income statement. ② Balance Sheet - It is also called statement of Financial Position -> It presents company's cubbent financial position by disclosing resources & obligations. → Owners Equity = Assets- Liabilities. Balance sheet is presented as on date... 6 Statement of changes in Equity: This statement reports changes in owner's investment - Basic components include equity share capital of paid up share capital, retained ecconings & non controlling minority interests & reserves. It shows the beginning balance, any increase of decrease during the period as closing balance.

page-2 4 Cash flow statement - - Cash flow statement shows the financial flexi- - bility of the company. » Cash flow is divided into 3 categories . a) Operating - include ay to operational activities b) Investing - associated with activities related to obtaining of repaying capital used for the business. Erfinancing associated with acquisition and i disposal on assets. yThere are two methods- direct and indirect method of preparing cash flows. In additional to above, financial statements, include notes to accounts and supplementary schedules. They provide information essential for understanding the data in the primary statements. - They provide basis for preperation of financial statements, accounting policies, methods & estimates used. - It allows users to improve their assesment of the amount, timing & ucestainity of the estimates sepooted.

Page 3 y Provides additional information like business acquisitions of disposals, legal actions, employee benefit plans, contigenicies & commitments, significan customers, sales to related parties and segments of the firm. In today's changing world, it is necessary that the financial statements should just not provide financial data. This is necessary not only to keep the companies ecologically & socially responsible it also gives a non- financial view of the company. These reports ensure that the company is not exploiting ecological and social factors to maximise financial gains. Hence reporting of ecological and social peoformance of the company is also essential