Accountancy Financial statements-1 Class 11 Chapter 9

NCERT Solution for class 11 Financial statements-1 Accountancy Chapter 9

Financial statements class 11 taken from NCERT book Accountancy Chapter 9 there is all the topics are covered Related to this chapter Financial statements class 11 Read full information here.

Financial statements Class 11 Intoduction

Financial statements are vital tools for assessing a company’s financial health and performance. In Class 11, students typically delve into key statements like the Income Statement, which outlines revenues and expenses, resulting in net income or loss. The Balance Sheet provides a snapshot of a company’s assets, liabilities, and equity at a specific point in time, ensuring the fundamental equation of Assets = Liabilities + Equity holds true. Additionally, the Cash Flow Statement details how changes in accounts and income impact cash and cash equivalents across operating, investing, and financing activities.

Financial statements Class 11 Important Notes

1. Objective of Financial Statements:
   • Financial statements aim to provide information about the financial position, performance, and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions.
2. Types of Financial Statements:
   • The three main financial statements are the Income Statement, Balance Sheet, and Cash Flow Statement. The Income Statement shows profitability, the Balance Sheet presents the financial position, and the Cash Flow Statement details cash inflows and outflows.
3. Accounting Equation:
   • The fundamental accounting equation is Assets = Liabilities + Equity. This equation must always balance, ensuring that a company’s resources (assets) are financed by its obligations (liabilities) and owner’s investment (equity).
4. Double Entry System:
   • The double-entry system is a fundamental accounting concept where every transaction has equal and opposite effects on at least two accounts. This system ensures that the accounting equation remains balanced.
5. Accrual Basis vs. Cash Basis:
   • Financial statements are prepared under the accrual basis of accounting, where transactions are recorded when they occur, not necessarily when the cash is received or paid. This provides a more accurate representation of a company’s financial performance.

Financial statements Class 11 Important Formats

Profit and Loss A/c Format

Particulars	Amount	Particulars	Amount
To Opening stock To purchase Less :Purchase		by Closing stock by sales Less: sales Return
Returns To wages To Carriage Inwards To Gross Profit c/d
To salaries To General Expense To Rent To carriage Outwards To Advertising To Net Profit (transfer to capital Account)		by Gross Profit B/d

Explanation

• Revenue includes sales and other operating revenues.
• Cost of Goods Sold (COGS) represents the direct costs associated with the production of goods or services.
• Gross Profit (or Loss) is the difference between total revenue and COGS.
• Operating Expenses encompass selling and distribution expenses, as well as administrative expenses.
• Operating Profit (or Loss) is the result after deducting operating expenses from the gross profit.
• Other Income includes non-operating revenues.
• Profit (or Loss) Before Tax is the sum of operating profit and other income.
• Tax Expenses represent current and deferred tax liabilities.
• Net Profit (or Loss) After Tax is the final figure after deducting taxes from the profit before tax.

Format of Balance sheet

Particular	Amount	Particular	Amount
Capital: Opening Balance xxxx Add: Net Profit xxxx (Less: Net Loss) Less: Drawings xxxx Long-term Liabilities: Loan Current liabilities: Income received-in-advance Sundry Creditors Outstanding Expenses Bills Payable Bank Overdraft		Fixed Assets: Good will Land Building Plant & Machinery Furniture & Fixtures Investment: Current Assets: Closing stock Accrued income Prepaid expenses Sundry Debtors Bills Receivable Cash at Bank Cash in Hand

Explanation

1. Shareholder’s Equity:
   • This section represents the owner’s claims on the company’s assets. It includes Share Capital (the amount invested by shareholders) and Reserves and Surplus (accumulated profits and other reserves).
2. Non-Current Liabilities:
   • These are obligations that are not expected to be settled within the next 12 months. Long-Term Debt represents loans and obligations with a maturity longer than one year. Deferred Tax Liabilities arise from temporary differences in tax accounting. Other Non-Current Liabilities may include long-term provisions.
3. Current Liabilities:
   • These are obligations expected to be settled within the next 12 months. Short-Term Debt includes loans and obligations due in the short term. Accounts Payable are amounts owed to suppliers. Accrued Liabilities represent accrued expenses, and Other Current Liabilities may include short-term provisions.
4. Non-Current Assets:
   • These are long-term assets expected to provide economic benefits over a period longer than one year. Property, Plant, and Equipment include tangible assets like buildings and machinery. Intangible Assets include non-physical assets like patents and trademarks. Investments may include long-term investments in securities or other entities.

Important Formulas

1. Gross Profit= Net Sales- Cost of Goods Sold (COGS)
2. Net Sales= Total Sales- Sales Return 
3. Cost of Goods Sold (COGS)= Opening Stock + Net Purchases + Direct Expenses – Closing Stock
4. Net Purchases= Total Purchases- Purchases Return 
5. Operating Profit=Net sales- Operating Cost
6. Operating Profit= Gross Profit- (office and administration expenses + selling and distribution expenses)
7. Net Profit= Operating Profit + Non operating income – Non operating expenses

Financial statements Class 11 Question and Answer

Question:1  What are the objectives of preparing financial statements?

Answer

1. Provide Information to Stakeholders:
   • Financial statements aim to offer relevant and reliable information to a wide range of stakeholders, including investors, creditors, management, employees, regulatory authorities, and the general public. These statements help stakeholders make informed decisions about the entity.
2. Assess Financial Position:
   • Financial statements, particularly the balance sheet, provide a snapshot of the company’s financial position at a specific point in time. Stakeholders can assess the company’s assets, liabilities, and equity, gaining insights into its overall financial health.
3. Evaluate Financial Performance:
   • The income statement summarizes the company’s financial performance over a specific period, showing revenues, expenses, and net income or loss. This information helps stakeholders evaluate how well the business has performed in terms of generating profits.
4. Facilitate Investment Decisions:
   • Investors use financial statements to assess the financial stability and growth potential of a company. They can analyze profitability, liquidity, and solvency, aiding in investment decisions.
5. Assist in Credit Decisions:
   • Creditors, such as banks and suppliers, use financial statements to evaluate the creditworthiness of a company. They assess the company’s ability to repay debts and meet its financial obligations.
6. Support Management Decision-Making:
   • Internal users, particularly management, use financial statements for planning, budgeting, and decision-making. The statements provide insights into areas that may require attention, helping in strategic planning and resource allocation.
7. Comply with Legal and Regulatory Requirements:
   • Companies are often required by law and regulatory bodies to prepare and disclose financial statements. Compliance ensures transparency and accountability, maintaining the integrity of financial reporting.

Question:2  Explain the concept of the cost of goods sold.

Answer:

1. Definition:
   • The Cost of Goods Sold refers to the total costs incurred by a company to produce or purchase the goods that were sold to customers during a particular accounting period. These costs include both variable and direct costs associated with the production or acquisition of inventory.
2. Components of COGS:
   • The components of COGS typically include:
     • Direct Materials: The cost of raw materials and components directly used in the production of goods.
     • Direct Labor: The cost of labor directly involved in the manufacturing process.
     • Manufacturing Overhead: Indirect costs associated with production, such as utilities, maintenance, and factory rent.
3. Calculation:
   • The formula for calculating COGS is: COGS=Opening Inventory+Purchases−Closing InventoryCOGS=Opening Inventory+Purchases−Closing Inventory
   • Where:
     • Opening Inventory represents the value of inventory at the beginning of the accounting period.
     • Purchases include the cost of additional inventory acquired during the period.
     • Closing Inventory is the value of inventory remaining at the end of the
4. Importance:
   • COGS is a critical metric because it directly impacts the calculation of gross profit. Gross profit is calculated by subtracting COGS from total revenue. This figure is essential for assessing the profitability of a company’s core operations.
5. Presentation on the Income Statement:
   • COGS is presented on the income statement as an expense and is deducted from total revenue to calculate gross profit. The gross profit figure represents the portion of revenue that remains after covering the direct costs associated with producing or acquiring goods.
6. Inventory Valuation Methods:
   • The choice of inventory valuation method (e.g., FIFO – First In, First Out, LIFO – Last In, First Out, or weighted average) affects the calculation of COGS and, consequently, the reported profitability.

Question:3 What is a balance sheet? What are its characteristics?

Answer:

1. Snapshot of Financial Position:
   • The balance sheet represents a specific moment in time, usually the end of a reporting period, and reflects the financial position of the company at that precise moment.
2. Dual Presentation:
   • The balance sheet is divided into two main sections: assets and liabilities. Assets represent what the company owns, and liabilities represent what it owes. The owner’s equity is the residual interest after deducting liabilities from assets.
3. Assets:
   • Assets are classified as current (short-term) or non-current (long-term). Current assets include cash, accounts receivable, and inventory, while non-current assets include property, plant, equipment, and long-term investments.
4. Liabilities:
   • Liabilities are also classified as current or non-current. Current liabilities include short-term debts and accounts payable, while non-current liabilities encompass long-term debts and deferred tax liabilities.
5. Equity:
   • Equity represents the residual interest in the assets of the entity after deducting liabilities. It includes common stock, retained earnings, and additional paid-in capital.
6. Conservation of Assets:
   • The total assets must always equal the sum of liabilities and equity, adhering to the accounting equation. This ensures the conservation of resources.
7. Historical Cost Basis:
   • The assets and liabilities are generally reported on the balance sheet at their historical cost, representing the original cost incurred to acquire or produce them. However, certain assets may be reported at fair value under certain circumstances.
8. Usefulness for Decision-Making:
   • The balance sheet is a crucial tool for decision-making by providing insights into a company’s liquidity, solvency, and overall financial health. Stakeholders, including investors, creditors, and management, use it to assess the company’s ability to meet its obligations and to make informed decisions.

Question:4 What is an operating profit?

Answer:

Operating profit, also known as operating income or operating earnings, represents the financial result of a company’s core business operations before deducting interest and taxes. It is derived by subtracting the operating expenses, including costs of goods sold (COGS) and operating expenditures like selling and administrative expenses, from the gross profit. Operating profit reflects the profitability of a company’s primary business activities and is a key indicator of operational efficiency. A positive operating profit indicates that the company’s core operations are generating earnings, while a negative figure suggests operational challenges. It is a crucial metric for assessing a company’s ability to sustain and improve its profitability through its day-to-day operations.

Financial statements Class 11 Numerical Question and Answer

Question:1 From the following balance taken from the books of simmi and vimmi Ltd. for the year ending march , 31, 2003 calculate the gross profit.

Transactions	Rs
Closing stock	2,50,000
Net sales during the year	40,00,000
Net purchases during the year	15,00,000
Opening stock	15,00,000
Direct expreses	80,00

Trading Account as on March 31,2003

Particulars	Amount	Particulars	Amount
Opening stock	15,00,000	Net sales	40,00,000
Net purchases	15,00,000	Closing stock	2,50,000
Direct Expenses	80,000
Gross Profit	42,50,000		42,50,000

Question:2 From the following balances extracted from the books of M/s Ahuja and Nanda.calculate the amount of

1. Cost of goods available for sale
2. cost of goods sold during the year
3. Gross Profit

Transactions	Amount
Opening stock	25,000
Credit purchases	7,50,000
Cash purchases	3,00,000
credit sales	12,00,000
Cash sales	4,00,000
wages	1,00,000
salaries	1,40,000
Closing stock	30,000
sales return	50,000
purchases return

Answer:

1 Cost of Goods sold Available for sales

or

Cost of Goods Manufactured =opening stock+Net purcchases+wages

=25,000+10,40,000+1,00,000

= Rs, 11,65,000

2 Cost of Goods sold = opening stock +Net purchases+wages -Closing stock

=25,000+10,40,000+1,00,000-30,000

=Rs 11,35,000

3 Trading Account

Particulars	Amount	Particulars	Amount
Opening stock purchases	25,000	sales
Add: Credit purchase 7,50,000		Add: credit sales 12,00,000
Add: cash purchase 3,00,000		Add: cash sales 4,00,000
———————-Total 10,50,000		—————–Total 16,00,000
Less: purchase Return (10,000)	10,40,000	Less: sales Return (50,000)	15,50,000
wages	1,00,000	Closing stock	30,000
Gross Profit	4,15,000
	15,80,000		15,80,000

Question:3 The following are the extracts from the trial balance of M/s bhola and sons as on march 31,2005

Account title	Debit Rs	Credit Rs
opening stock	2,00,000
purchase	8,10,000
sales		10,10,000
	10,10,000	10,10,000

Only relevant items

closing stock as on date was valued at Rs, 3,00,000

you are required to record the necessary journal entries and how the above items will appear in the trading and profit and loss account and balance sheet of M/s bhola and sons.

Answer:

Books of M/s Bhola and sons

Journal

Date	Particulars	L.F	Debit (Rs)	Credit (Rs)
2006 Mar31	Trading A/c ————-Dr To opening stock A/c To purchases A/c (balances from Purchases account and stock account transferred to trading account)		10,10,000	2,00,000 8,10,000
Mar 31	sales A/c ————–Dr closing stock A/c To trading A/c (balances from sales and closing stock transferred to trading account )		10,10,000 3,00,000	13,10,000
Mar 31	Trading A/c To Profit and loss (gross profit )A/c (balances of trading account gross profit transferred to profit and loss account )		3,00,000	3,00,000

Trading Account as on March 31, 2005

Particulars	Amount	Particulars	Amount
opening stock	2,00,000	sales	10,10,000
purchases	8,10,000	closing stock	3,00,000
profit and loss A/c gross proft	3,00,000
	13.10,000		13.10,000

Balance sheet as on March 31,2005

Liabilities	Amount	Assets	Amount
		Closing stock	3,00,000

Read Also

1. Theory base of Accounting class 11
2. 1 Recording of transactions-1 class 11
3. Recording of Transaction-2 class 11

Conclusion

In conclusion, the study of financial statements in Class 11 provides a foundational understanding of essential documents such as the Income Statement, Balance Sheet, and Cash Flow Statement. These statements play a crucial role in communicating a company’s financial health and performance to various stakeholders. Students learn to analyze revenue, expenses, assets, liabilities, and equity, enabling them to assess profitability, financial position, and cash flow.

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