rations carried out by the organization during a given period of time and second balance sheet which indicates the state of affairs of the organization at any given point of time in terms of its assets and liabilities.
Main purpose of financial accounting is to ascertain profit or loss and to indicate financial position of an enterprise. Two fundamental statements of financial accounting are income and expenditure statement and balance sheet. The profit and loss account or income and expenditure account is prepared for a particular period to find out the profitability of the firm and balance sheet is prepared on a particular date to determine the financial position of the firm.
Financial accounting summaries transactions taking place during a period with the objective of preparing the financial statement.
FINANCIAL PERFORMANCE ANALYSIS
Financial performance analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing the relationship between the items of balance sheet and profit and loss account. It also helps in short-term and long-term forecasting and growth can be identified with the help of financial performance analysis.
The dictionary meaning of ‘analysis’ is to resolve or separate a thing in to its element or components parts for tracing their relation to the things as whole and to each other.
‘FINANCIAL STATEMENT’ refers to formal ad original statements prepared by a business concern to disclose its financial information
According to John.N.Meyer, “The financial statement provides summary of accounts of a business enterprise, the balance sheet reflecting assets, liabilities and capital as on a certain date and the income statement showing the result of operation during a certain period”
The financial statements are prepared with a view to depict the financial position of the concern. They are based on the recorded facts and are usually expressed in monetary terms. The financial statement are prepared periodically that is generally for the accounting period
The term financial statement has been widely used to represent two statements prepared by accountants at the end of specific period. They are :
- Profit and loss a/c or income statement
- Balance sheet or statement of financial position
Limitation of Financial Statement:
- Information shown in financial statement is not precise since it is based on practical experience and the conventions and rules developed therefore
- Financial statements do not always disclose the correct financial position of the business concern as they are influenced by the personal opinions,judgement,subjective view and whims of accountant of each concern
- Balance sheet of a concern is a statics document it disclose the financial position of a concern on a particular date.
- Information disclosed by profit& loss a/c may not be the real profit as many items shown in the profit & loss a/c may not the real
- Financial statements are dumb, because they speak themselves. The statements require further detailed analysis and interpretation.
- Financial statement of the one period may not be comparable.
- Financial statement do not disclose the contribution of man towards the efficiency of the business.
ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENT
The various tools of financial statement are used for decision-making process. The financial statement becomes a tool for future planning and forecasting. The analysis of these statements involves their division according to similar groups and arranged in desired form. The interpretation involves the explanation of financial facts in a simplifiers manner.
Objectives of Analysis and Interpretation:
The users of financial statement have definite objectives to analysis and interpret .Therefore; there are variations in the objectives of interpretation by various classes of people. However, there are certain specific and common objectives which are listed below:
- To interpret the profitability and efficiency of various business activities with the help of profit and loss account;
- To measure man