COMPONENTS OF FINANCIAL STATEMENTS

COMPONENTS OF FINANCIAL STATEMENTS [SCHEDULE III Division I and Division II]

Financial reporting is the language that communicates information about the financial condition and

operational results of a company (public or private), not-for-profit organization, or state or local

government. A financial statement (or financial report) is a formal record of the financial activities and

position of an entity. Relevant financial information is presented in a structured manner and in a form

easy to understand. Specifically, financial reporting includes the following information:

1. Balance Sheet:

It is also referred to as a statement of financial position, reports on a company’s

assets, liabilities, and owners’ equity at a given point in time.

2. Statement of Profit and Loss:

It is also known as a statement of comprehensive income, statement of revenue & expense, P&L or

profit and loss report, reports on a company’s income, expenses, and profits over a period of time. A

profit and loss statement provides information on the operation of the enterprise. These include sales

and the various expenses incurred during the stated period.

3. Statement of Changes in Equity:

It is also known as equity statement or statement of retained earnings, reports on the changes in equity

of the company during the stated period.

4. Cash Flow Statement:

A cash flow statement reports on a company’s cash flow activities, particularly its operating, investing

and financing activities.

5. Notes to accounts:

The notes are an integral part of these financial statements. It warns users that failure to read the notes

(or footnotes) to the financial statements will result in an incomplete picture of the company’s financial

health. Notes provide supplemental information about the financial condition of a company without

which the financial statements cannot be fully understood. There are three basic types of notes –


(a) notes related to the descriptions of the accounting rules applied in the company’s statements;

(b) Notes related to additional detail about a line on the financial statements; and

(c)Notes related to additional financial disclosures about items not listed on the statements themselves.

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