Chapter 8 of NCERT Class 11 Accountancy is titled Financial Statements – 1, and it explains the basic structure and purpose of financial statements like Trading and Profit & Loss Account and the Balance Sheet. These statements show the financial health and performance of a business at the end of an accounting period. This chapter introduces important terms like gross profit, net profit, closing stock, and the final position of assets and liabilities.
I decided to write about this chapter because financial statements are at the heart of accountancy. Without understanding how a business’s performance is presented in its books, we can’t move forward in this subject. During my own preparation, I realised that many students struggle with remembering the format and purpose of each financial statement. That’s why I wanted to explain it in a simple way and also provide the official PDF so that you can study from the exact NCERT material. Once you get a clear understanding of this chapter, even solving practical questions in exams becomes much easier. This chapter also helps you build the base for future commerce topics, especially in Class 12.
What Are Financial Statements?
Financial statements are the final records that summarise the results of business activities over a period. They include:
- Trading Account
- Profit & Loss Account
- Balance Sheet
These statements are prepared after the trial balance and adjustments are made. They help in knowing the exact profit or loss and the financial position of the business.
Objectives of Financial Statements
- To determine the profit or loss during the accounting period
- To show the financial position through a balance sheet
- To provide accurate information to owners, investors, and creditors
- To ensure compliance with accounting principles
Components of Financial Statements
1. Trading Account
Used to find out the gross profit or gross loss. It includes:
Debit Side:
- Opening stock
- Purchases
- Direct expenses (like wages, carriage inwards)
Credit Side:
- Sales
- Closing stock
Gross Profit = Sales + Closing Stock – (Opening Stock + Purchases + Direct Expenses)
2. Profit and Loss Account
This is prepared after the trading account to find the net profit or net loss.
It includes:
- Incomes like commission received, interest income
- Expenses like salaries, rent, insurance, depreciation
Net Profit = Gross Profit + Other Incomes – Indirect Expenses
3. Balance Sheet
A statement that shows the assets and liabilities of a business on a particular date. It has two sides:
| Liabilities | Amount | Assets | Amount |
|---|---|---|---|
| Capital | xxxx | Cash in hand | xxxx |
| Creditors | xxxx | Debtors | xxxx |
| Outstanding expenses | xxxx | Closing stock | xxxx |
| Machinery/Equipment | xxxx |
It helps to understand how much the business owns and owes.
