To Creditors A/c Key Terms Introduced in the Chapter Balance Sheet Grouping and Marshalling Bills Payable Bank Overdraft Bills Receivable Capital Receipts Capital Expenditure Carriage Outwards Carriage Inwards Closing Entries Cash at Bank Current Assets Closing Stock Purchases Return Currents Liabilities Return Inwards Rent Revenue Expenditure Return Outwards Discount Allowed Depreciation Cash Discount Received Factory Expenses Trade Expenses Fixed Assets Financial Statements Gross Profit Freight Income Tax Gross Loss Interest on Drawings Interest on Capital Net Profit Net Loss Order of Performance Revenue Expenditure and Liquidity Revenue Receipts Sales Return Opening Entries Summary with Reference to Learning Objectives Meaning, usefulness and types of financial statements : After the agreement of the trial balance, a business enterprise proceeds to prepare financial statements. Financial statements are the statements, which present periodic reports on the process of business enterprises and the results achieved during a given period. Financial statements includs trading and profit and loss account, balance sheet and other statements and explanatory notes, which form part thereof. Information provided by financial statements is useful to management to plan and control the business operations.
Financial statement are also useful to creditors, shareholders and employees of the enterprise. Meaning need and preparation of trading and profit and loss account : The profit and loss account highlights the profit earned or loss sustained by the business entity in the course of business operation during a given period. The need for preparing the trading and profit and loss account is to ascertain the net result of business operations during a given period. The profit and loss account shows the items of revenue expenses and losses on the debit side, while items of gain and gross profit are shown on the credit side.
For the preparation of the trading and profit and loss account, closing entries are recorded to transfer balances of account of items of expenses and revenues. Net profit or net loss shown by the profit and loss account is transferred to the capital account. Meaning, characteristic, need and structure of the balance sheet : The balance sheet is a