A. Financial Statements
1.0
Introduction
Accounting
is defined as an information system receiving its input from various financial
transactions, processing these transactions and giving as output the financial
statements and other reports that will enable the users to make suitable decision
dealing with business and economic entities. The records of the transactions
are summarized into two major statements known as 'financial statements' or
'final accounts'. They comprise of:
a)
Balance sheet, which shows the financial position of the concern,
by listing out all the assets and properties that the concern owns and the
amount it owes to others and
b)
Profit and Loss Account (or Income Statement) which shows the various
sources of income and the different heads of expenditure. The difference
between the income and expenditure is the profit made by the concern.
2.0
Balance sheet
The
final accounts, which are the ultimate output of accounting, are studied not
only by the management, but also by outsiders who have something to do with the
concern. Statutorily, companies are required to publish their final accounts.
These statements are therefore available to anyone who wants to know about the
financial position of the company. The form in which a company should prepare
its balance sheet is given below.
Table 1: A Typical Balance Sheet
|
Liabilities
|
Assets
|
|
Share
capital
Reserves
and surplus
Secured
loans
Unsecured
loans
Current
liabilities and provisions
|
Fixed
assets
Investments
Current
assets, loans and advances
Miscellaneous
expenditure
Profit
and loss account (loss)
|
2.1.
Liabilities
2.1.1
Share Capital
A
share is the unit into which the capital of the company is divided. The value
for which each share is divided is known as the face value or nominal value of
the share. At the time of incorporating company, the promoters take a
futuristic look and decide on the maximum capital that the company may require
during its life time. This amount will be included in the capital clause of the
Memorandum of Association which they file with the Registrar of Companies.
The
amount mentioned in the capital clause of the Memorandum of Association of the
company is known as the authorized or nominal capital of the company. Authorized
capital is the maximum that the company can raise as share capital during its
life time.
As
and when need arises, and to the extent required, the directors of the company
may issue shares to the public. The face value of the shares offered to the
public is known as the issued capital of the company. Of the issued capital
that portion which has been actually taken up by the public is known as the
subscribed capital of the company. Not the entire money on the shares issued
may be required to be paid by the subscribers. The portion of the subscribed
capital which the company has called upon the shareholders to pay is the
called-up capital of the company.
