Financial statements are the statements which present periodic reports on the progress of a business enterprise and the results achieved during a given period. These include Trading Account, Profit and Loss Account, Balance Sheet and other statements and explanatory notes which form part therefore of. Information provided by financial statements is useful to management to plan and control the business operations. Financial statements are also useful to creditors, shareholders and employees of the enterprise.

Trading Account shows the results of buying and selling of goods during a given period. The basis for the preparation of Trading Account is the matching of selling prices of goods and services with the cost of goods and services rendered. The need for preparation of Trading Account is to know the gross profit or gross loss as a result of buying and selling of goods during the accounting period.

Trading account is debited with the opening stock, net purchases and expenses directly connected with such purchase, while it is credited with the net sales and closing stock. For the preparation of Trading Account, the closing entries are passed to transfer balances of accounts of all the items due to appear therein. Gross profit or gross loss shown by the Trading Account is transferred to the Profit and Loss Account.

Profit and Loss Account highlights the net profit earned or net loss incurred by the business entity in the course of business operations during a given period. The need preparing the Profit and Loss Account is to ascertain the net results of business opertions during a given period. Analysis of the Profit and Loss Account is helpful in controlling expenses which are incurred in running a business enterprise.

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 te preparation of the Profit and Loss Account, closing entries are passed to transfer balances of accounts of items fo expenses and gain. Net profit or net loss show by the Profit and Loss Account is transferred to the Capital Account.

Balance Sheet is a statement of assets and liabilities of a business enterprise and shows the financial position at given date. Information contained in a balance sheet is true only on that date ( e.g. 31st March 2009).

A Balance Sheet has to be prepared to know the financial position of the business; and the nature and values of its assets and liabilities.

Balance Sheet is a part of the Final Accounts. but is not an account; it is only a statement. In a Balance Sheet, the total of assets and liabilities are always equal. It portrays the Accounting Equation.

All the accounts which have not been closed till the preparation of the Trading and Profit and Loss Account are shown in the Balance Sheet. Assets and liabilities shown in the Balance Sheet are marshaled in order of liquidity or order of permanence.

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