Accounting is a system of collecting, summarizing, analyzing and reporting in monetary terms, financial status of an organization. The end product of the financial accounting is the financial statements consisting of Balance Sheet and Profit & Loss Account.
As the name suggests, balance sheet provides information about financial position of a firm at a particular point of time. On the other hand, Profit & Loss Account of a firm portrays as a flow statement, the results of operations over a specified period of time (usually accounting year, April-March). The Balance Sheet contains information pertaining to firm’s assets, liabilities and shareholders’ equity whereas Profit & Loss Account summarizes the revenue items, the expense items and the difference between the two (net income) for an accounting period.
The popular tools are:
a) Comparative Financial Statements,
b) Common sized Statements, and
c) Ratio Analysis
