Preparation Of Financial Statements For Sole Proprietorships
Preparation of financial statements for sole proprietorships
Learning Objectives:
Identifying the components of Financial Statements
Identifying the objectives of Financial Statements
Understanding the preparation of Financial Statements
Adjustments needed in Financial Statements
1. Introduction
Generally Financial Statements are prepared for any business annually. As per the Periodic concept the profits and losses of a business is computed for a period. In practice this period is a one year. In Sri Lanka the financial statements are prepared for an assessment year. Year of assessment commences on 1st April and ends on 31st March in each year.
Government departments consider the calendar year as fiscal year. This calendar year is treated as the government financial year. Calendar year covers a period commencing from 1st January to
31st December in each year. As per the Companies Act Company’s financial year commences on
1st April and ends on 31st March in each year. Financial Statements are really useful for the parties interested in the business and they are taking Economic decisions based on the information in the financial statements.
Given below are the components of the Financial Statements and the objective of each component is also given in-front of each component.
Statement
Trading account
Profit and Loss account
Balance Sheet
Objective
Computation of gross profit or loss
Computation of net profit or loss
Represents the financial position or status
2. Trading, Profit and Loss Account
A Manufacturing account is prepared by an organization engaged in manufacturing process for computing the cost of production. If an organization does not engage in any manufacturing process it may prepare a trading and profit and Loss account to compute the trading profit and net profit for the accounting period. In practice some enterprises prepare income statements in lieu of Profit and loss account. Objective of an income statement is to find out the
Learning Objectives:
Identifying the components of Financial Statements
Identifying the objectives of Financial Statements
Understanding the preparation of Financial Statements
Adjustments needed in Financial Statements
1. Introduction
Generally Financial Statements are prepared for any business annually. As per the Periodic concept the profits and losses of a business is computed for a period. In practice this period is a one year. In Sri Lanka the financial statements are prepared for an assessment year. Year of assessment commences on 1st April and ends on 31st March in each year.
Government departments consider the calendar year as fiscal year. This calendar year is treated as the government financial year. Calendar year covers a period commencing from 1st January to
31st December in each year. As per the Companies Act Company’s financial year commences on
1st April and ends on 31st March in each year. Financial Statements are really useful for the parties interested in the business and they are taking Economic decisions based on the information in the financial statements.
Given below are the components of the Financial Statements and the objective of each component is also given in-front of each component.
Statement
Trading account
Profit and Loss account
Balance Sheet
Objective
Computation of gross profit or loss
Computation of net profit or loss
Represents the financial position or status
2. Trading, Profit and Loss Account
A Manufacturing account is prepared by an organization engaged in manufacturing process for computing the cost of production. If an organization does not engage in any manufacturing process it may prepare a trading and profit and Loss account to compute the trading profit and net profit for the accounting period. In practice some enterprises prepare income statements in lieu of Profit and loss account. Objective of an income statement is to find out the