Vertical Income Statement | Analysis of Financial Statements (Solved Question)

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Table of Contents

Vertical Income Statement

Meaning

The Financial Statements are prepared periodically i.e, at the end of the financial year, all the information recorded in the books of accounts of business is summarized in the financial statement.

“The Statements prepared by the business to find out profitability, efficiency, solvency, growth of the business to judge the financial strength and status are called Financial Statements.”

These statements give a complete picture of financial positions and managerial performance. Financial Statements are prepared for the purpose of presenting the Annual Report and prepared by the profit concern as well as Non-Profit concern organizations.

There are two important Financial Statements.

(1) Balance Sheet / A Position Statement
(2) Profit and Loss A/c / An Income Statement

Financial Statement analysis includes two aspects
(a) Analysis of Data: It provides a methodical classification of financial statement.
(b) Interpretation of Data: It means an explanation of the meaning and significance of data.

Analysis of Financial Statements

Income Statement:

The Profit & Loss account needs to be arranged in a vertical format which is suitable for further analysis. It is also called a vertical Income Statement. Its format is given below.