Financial statements

  -The aim of accounting is to keep records systematically to ascertain financial performance and financial position of                            enterprises and communicate the relevant financial information to management and public at large.

- All enterprises prepare financial statements like balance sheet, profit and loss account, cash flow statement etc by following various concepts, principles and conventions etc, to know financial position.

Qualitative Characteristics of financial statements :-

Are as follows:-

1. Understandability: The information in the financial statements must be easily understandable.

2. Relevance:

              -Information must be relevant for decision making need of users.

              -they must be able to evaluate past, present and future events.

       3. Reliability: Information must be reliable to be useful for the need of users. it                            should be free from errors and bias . user can depend upon it and can take their decisions.

4. Comparability: must be able to compare financial statement of different period to know financial position, performance and cash flows.

5. Materiality :- Relevance of information is affected by its materiality.

6. Faithful Representation:- Information must be presented faithfully. The transaction and events to be reliable for user.

7. Substance over form :- the transactions and other events in financial statement should be accounted and presented in accordance with their substance and economic reality and not merely their legal form. For example, assets taken on lease are shown as an asset in balance sheet, even firm is not a legal owner.

8. Neutrality :-Information contained in financial statement must be that , it is free from bias.

9. Prudence:- Prudence means degree of caution in exercise of judgments requires to estimate condition of uncertainty so that assets and income are not overstated and liabilities and expenses are not understated.

10. Full, Fair and adequate Disclosure :-The disclosure should be full and final to assess financial position of enterprises. Principle of full disclosure implies nothing should be omitted. Principle of fair disclosure implies all transaction recorded in financial statement present true and fair view result of business. Adequate disclosure implies that information influencing the decision of users should be disclosed in details and should make sense.

11. Completeness :-- Information in financial statement must be complete. An omission may cause false or misleading and unreliable information.

Basis of accounting:-

1. Accrual basis of accounting

2. Cash basis of accounting