PREFACE

We have great pleasure in presenting this completely revised edition of Analysis of Financial Statements. Another edition Analysis of Financial Statements has been brought out wherein new illustrations and questions have been added to each chapter for even better understanding of the subject. The present edition has been designed to cater to the needs of the students of class ii, prepared strictly in accordance with the syllabus prescribed by the Central Board of Secondary Education, NEW DELHI. Besides revising and simplifying the text, a number of illustration and practice problems have been modified and added to this edition. Special features of the book are as follows: It has been designed primarily as a textbook for the students of Class ii. It is written in a lucid style and simple language. It includes the necessary material which provides a sound conceptual base in the accounting theory. It contains accounting formats, tables, etc., to explain the subject matter in an easy to understand style. It contains learning objectives in the beginning of each chapter. It contains a large number of examples for easy understanding of the subject. It gives due weightage to each topic according to the marks and periods allotted by the C.B.S.E. It contains essay type, short answer type and objective type questions at the end of each chapter so that students may test their understanding of the subject. It gives material which is entirely class-tested and graded as to the degree of difficulty.

We sincerely hope that this book fully serve the needs of Commerce students of Class ii. We are thankful to Dr. S.S. Sareen, Head of the Commerce Department, Shaheed Bhagat Singh College and University of Delhi for his valuable suggestions and assistance in revising the book. We are also thankful to the Publishers, who have produced this attractive layout and taken all pains to see the book through the press. Despite our best efforts, some shortcomings may have remained in the book. We would be extremely grateful for any constructive suggestions from our readers for further improvement of the book.

(AUTHORS)

Meaning of Financial Statements

Financial statements are prepared and presented for the external users of accounting information. In India, a complete set of financial statements includes (i) a balance sheet, (ii) a profit and loss account, and (iii) schedules and notes forming part of balance sheet, and profit and loss account. In many countries, financial statements also include a statement of changes in

financial position (which may be presented in a variety of ways, for example, as a statement of cash flows or a statement of funds flow). Accounting is the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by the users of information. Financial statements are the means of communicating accounting information which is generated in the various accounting processes to the external users of accounts. The external users include (i) investors, (ii) employees,

Controllable costs are those which can be influenced by the action of a member of an undertaking. A business organization is usually divided into a number of responsibilities centers and each such centre is headed by an executive. Controllable costs incurred in a particular responsibility centre can be influenced by the action of the executive heading that responsibility centre. Direct costs comprising direct labour, direct materials, direct expenses and some of the overhead are generally controllable by the shop level management. Non-controllable costs are those which cannot be influenced by the action of a specified member of an undertaking. For example, expenditure incurred by the tool room is controllable by the tool room manager but the share of the tool room expense which is apportioned to the machine shop cannot by the machine shop manager. It is only in relation to a particular individual that a cost may be specified as controllable or not. NOTE: A supervisor may be unable to control the amount of managerial remuneration allocated to his department but for the

Honesty is the best policy

It is true that honesty is the best policy. Today, we see many things around us which are not honest. Many persons are dishonest. Dishonesty may shine for some time. It may earn money, power and men. But all this is for a short time. Honesty is courageous, dishonesty is a coward. Honesty is bound to shine after the night of dishonesty. There is no place for dishonest people on the earth. They lose the battle in the end. An honest person only can win a place in the hearts of people. Double-faced men get temporary response but they are thrown out of people's hearts. Dishonesty cannot face the reality. It has to say hundred lies to hide one act of dishonesty. Therefore honesty is the best policy.