What is Comparative Financial Statements and its format?

Comparative statements: To analyse the financial position of a company comparative statements are used in which two or more years financial statements are compared to ascertain the growth level of a company. It shows percentage increase or decrease in financial data. Comparative financial statements can be done with two or more years of balance sheet or with income statements. It

Importance:

·         With the help of it investors knows how much company grows between two or more years or to analyse their decision is good or not for investing in that business.

·         Company can find out the reason behind decease in financial position if any between two or more years.

·         With the help of it company can analyse the trend in the market.

·         It helps to forecast the company’s growth in future.

·         It helps to control those actions which affect the future earnings of a company.

·         Comparative income statement shows the growth or decline in operating income between two or more years.

Limitations:

·         It is not useful for comparing two companies financial statement if they used different accounting principles.

·         It is based historical data so, it does not help in forecasting of future events.

·         It is based on balance sheet and profit and loss account if these are not prepared correctly then the comparative statement does not show the correct result.

·         Financial statements are very much affected by economic conditions and if the comparing year has different economic conditions then the comparative financial statements will not show the correct result.

Format of Comparative Income Statements: 

Particulars	Previous year	Current year	Increase or decrease	% increase or decrease
Net Sales	xxx	xxx	xxx	Xxx
Less: Cost of goods sold	xxx	xxx	xxx	Xxx
Gross profit (A)	xxx	xxx	xxx	Xxx
Less: Operating expenses	xxx	xxx	xxx	Xxx
Office & Administrative expense	xxx	xxx	xxx	Xxx
Selling & Distribution expenses	xxx	xxx	xxx	Xxx
Interest on short term loan	xxx	xxx	xxx	Xxx
Discount allowed	xxx	xxx	xxx	Xxx
Provision for bad debt	xxx	xxx	xxx	Xxx
Total operating expense (B)	xxx	xxx	xxx	Xxx
Operating profit(A-B)	xxx	xxx	xxx	Xxx
Add: Non-operating income	xxx	xxx	xxx	Xxx
Dividend received	xxx	xxx	xxx	Xxx
Profit on sale of asset	xxx	xxx	xxx	Xxx
Commission received	xxx	xxx	xxx	Xxx
Rent received	xxx	xxx	xxx	Xxx
Total income	xxx	xxx	xxx	Xxx
Less: Non-operating expense	xxx	xxx	xxx	Xxx
Goodwill, patent, copyright write off	xxx	xxx	xxx	Xxx
Interest on long term loan	xxx	xxx	xxx	Xxx
Preliminary expense, write off	xx	xx	xx	Xx
Discount on issue of shares or debenture, commission write off	xxx	xxx	xxx	Xxx
Loss on sale of asset	xxx	xxx	xxx	xxx
Total operating expense	xxx	xxx	xxx	Xxx
Net profit before tax	xxx	xxx	xxx	Xxx
Less: Tax	xxx	xxx	xxx	Xxx
Net profit after tax	xxx	xxx	xxx	Xxx

Format of Comparative Balance sheets:

Particulars	Previous year	Current year	Increase or decrease	% increase or decrease
Fixed Assets (A)	xxx	xxx	xxx	Xxx
Investments (B)	xxx	xxx	xxx	Xxx
Working Capital (C= D-E)	xxx	xxx	xxx	Xxx
Current assets (D):	xxx	xxx	xxx	Xxx
Stock- raw material work in progress, finished goods	xxx	xxx	xxx	Xxx
Debtors	xxx	xxx	xxx	Xxx
Prepaid expenses	xxx	xxx	xxx	Xxx
Accrued income	xxx	xxx	xxx	Xxx
Advance payments	xxx	xxx	xxx	Xxx
Cash in hand	xxx	xxx	xxx	Xxx
Cash at bank	xxx	xxx	xxx	Xxx
Bills receivables	xxx	xxx	xxx	Xxx
Marketable securities	xxx	xxx	xxx	Xxx
Current Liabilities (E):	xxx	xxx	xxx	Xxx
Bills payable	xxx	xxx	xxx	Xxx
Overdraft	xxx	xxx	xxx	Xxx
Creditors	xxx	xxx	xxx	Xxx
Outstanding expenses	xxx	xxx	xxx	Xxx
Advance received	xxx	xxx	xxx	Xxx
Provision for tax	xxx	xxx	xxx	Xxx
Provision for bad debt	xxx	xx	xxx	Xx
Provision for other liabilities	xxx	xxx	xxx	Xxx
Short term loan	xxx	xxx	xxx	Xxx
Capital Employed (A+B+C)	xxx	xxx	xxx	Xxx
Less: Long term funds:	xxx	xxx	xxx	Xxx
Debenture	xxx	xxx	xxx	Xxx
Share holders’ Funds	xxx	xxx	xxx	Xxx
Represented by-	xxx	xxx	xxx	Xxx
Equity capital	xxx	xxx	xxx	Xxx
Preference share capital	xxx	xxx	xxx	Xxx
Reserves and surplus	xxx	xxx	xxx	Xxx

                    

Comparative Balance Sheet vs. Comparative Income Sheet:

·         Comparative balance sheet prepared with the help of balance sheet of previous and current year whereas comparative income sheet prepared on the basis of income statement or Profit & Loss a/c.

·         Comparative balance sheet shows the total capital employed in a company whereas comparative income statement shows net profit after tax.

·         Comparative balance sheet shows growth in financial position whereas comparative income statement shows changes in sales and operating profit.