Learning Objectives –
After studying this chapter, you will be able to :
- state the nature of the financial statements;
- distinguish between the capital and revenue expenditure and receipts;
- explain the concept of trading and profit and loss account and its preparation;
- State the nature of gross profit, net profit and operating profit;
- describe the concept of balance sheet and its preparation;
- explain grouping and marshalling of assets and liabilities;
- prepare profit and loss account and balance sheet of a sole proprietory
firm.Teaching methodology : for teacing this topic the teacher should use discussion method, explanation method, illustration method.
Financial Statement
Financial statements are the statement which give information about the profitability (income statement) and the financial position (Balance Sheet) of the business at the end of accounting period.financial statements include two basic statements :
(i) Income statement (Trading and Profit and Loss Account)- prepared to ascertain gross profit and net profit / loss during an accounting period.(ii) Statement of Financial Position (Balance Sheet) - prepared to ascer tain financial position (assets, liabilities and capital) of an enterprise at a particular point of time.
In addition to the above two basic financial statements, two other state- ments also included infinancial statements :(i) Statement of Retained Earnings.
(ii) Cash Flow Statements.
But in class XI accountancy syllabus only two basic two statement treat- ment is to be done.
Capital Expenditure :
The amount which is incurred in acquiring or improving the value of fixed assets is called capital expenditure e.g. purchase of machinery / building/ furni- ture etc. and expenditure incurred for prepare an asset to ready for use (like installation exp., carriage, expenses incurred on second hand, fixed asset for ready to use).
Nature of Capital Expenditure :
(i) When expenditure incurred for increasing the earning capacity of the business.
(ii) Capital expenditure gives benefit over a long period (more than one accounting year).
(iii) Capital expenditure is recorded in balance sheet.
(iv) When an amount is incurred in non-recurring in nature.Examples of Capital Expenditure :
1. Purchase of fixed assets such as land, building, machinery, furniture, motor vehicle etc.
2. Wages paid for erection of machinery.
3. Expenses of overhauling secoxd-hand purchased machinery. (only at first time)
4. Interest on loan raised to purchase a fixed assets (upto the point of time ready to use of fixed assets).
5. Preliminary expenses for floating a company.
6. Expenses for obtaining a licence.
7. Initial expenditure for acquiring patent right.
8. Expenses incurred on purchase of goodwill, patents, trademark & copy- right etc.
9. Legal expenses incurred in connection with acquiring or defending suit for protecting fixed assets.
10. Expense incurred for on repair and whitewashing for the first time on the purchase of old building.
11. Expenses incured on purchase of fixed assets e.g. registration expenses.
12. Cost of air-conditioning of the office or factory premises.
CBSE Accountancy Class XI ( By Mr. Aniruddh Maheshwari )
Email Id : [email protected]
