CBSE Class 12 Accountancy – Chapter 8: Financial Statements of Companies
NCERT/CBSE-aligned study resource
1. Purpose of Financial Statements
Company financial statements communicate the financial position and financial performance of the company to shareholders, creditors and other users. They are prepared using the prescribed format and disclosure requirements.
2. Balance Sheet
The Balance Sheet presents assets, equity and liabilities at a particular date. Company presentation groups items into appropriate major and sub-heads.
| Broad area | Examples |
|---|---|
| Equity | Share capital, reserves and surplus |
| Non-current liabilities | Long-term borrowings |
| Current liabilities | Trade payables, short-term provisions |
| Non-current assets | Property, plant and equipment, long-term investments |
| Current assets | Inventories, trade receivables, cash and cash equivalents |
3. Statement of Profit and Loss
The Statement of Profit and Loss reports income and expenses for the accounting period and leads to profit or loss for the period.
4. Classification of Items
Correct classification is essential. Current assets and current liabilities are distinguished from non-current items using the applicable criteria and the nature of the company’s operating cycle.
5. Notes to Accounts
Notes provide additional detail supporting figures shown in the financial statements. They help users understand accounting policies, classifications and material information.
6. Comparative Understanding
A student should be able to identify where a transaction or balance belongs rather than memorising isolated headings. For example, trade receivables are generally current assets, while long-term borrowings are generally non-current liabilities, subject to applicable classification rules.
Worked Classification
Suppose a company has inventory ₹2,00,000, trade receivables ₹1,50,000 and long-term borrowing ₹5,00,000. Inventory and trade receivables are presented under current assets, while the long-term borrowing is presented under non-current liabilities, subject to the applicable reporting requirements.
Chapter-Specific MCQs
- Trade receivables are normally classified as: (A) current assets (B) equity (C) non-current liabilities (D) revenue. Answer: A.
- Share capital is presented under: (A) equity (B) current assets (C) revenue (D) expenses. Answer: A.
- Notes to accounts mainly provide: (A) supporting details and disclosures (B) sales invoices only (C) bank statements only (D) advertisements. Answer: A.
Practice Set
- Classify a list of balances into the appropriate Balance Sheet headings.
- Prepare a simplified Statement of Profit and Loss from supplied income and expense figures.
- Explain why notes to accounts are necessary for users of financial statements.