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Financial Statements of Companies

Financial Statements of Companies 

Let us first understand the meaning of company– As per Section 2(20) of Companies Act 2013, company means
  • Companies Incorporated Under Companies Act 2013;
  • Under any previous law (e.g Companies incorporate under Companies Act, 1956);or
  • Different Types of Companies as defined under Companies Act 2013.
Maintenance of Books of Accounts – As per section 128 of Companies Act 2013, Every company should prepare and at its registered office books of account and relevant books and financial statements on accrual basis and according to double entry system of accounting for every financial year giving a true and fair view of the state of the affairs.

Preparation of Financial Statements – as per section 2(40) of Companies Act, 2013, Financial Statement shall include.
  • Statement of Profit & Loss
  • Balance Sheet
  • Notes to Account
  • Cash Flow
  • Statement of Changes in Equity.

Let us discuss each of above statement on by one. 

Statement of Profit & Loss – 
  • Statement of Profit & Loss (also referred to as a Profit and Loss Account) is one of the financial statements of a company that shows the company’s revenues and expenses during a particular period. It indicates how the revenues (money received from the sale of products or services before expenses) are transformed into the net income (the result after deducting all expenses from revenue). The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported.
  • Charitable organizations that are required to publish financial statements do not produce Statement of Profit & Loss. Instead, they produce a similar statement that reflects funding sources compared against program expenses, administrative costs, and other operating expenses. This statement is commonly referred to as Income & Expense Account. 

Format of Statement of Profit & Loss-  

Statement of Profit & Loss
Name of Company……..
Profit & Loss Statement for the year ended….
(Rupees in …………..)

Particulars Note No. Figures of Current Year Figures of Previous Year
1 Revenue From Operations x xxx xxx
2 Other Incomes x xxx xxx
3 Total Income (1+2) x xxx xxx
4 Expenses:
Cost of Material Consumed x xxx xxx
Purchases of Stock-in-Trade x xxx xxx
Changes in inventories of Finished Goods x xxx xxx
Work in Progress x xxx xxx
Stock in trade x xxx xxx
Employee Benefits Expenses x xxx xxx
Finance Costs x xxx xxx
Depreciation and amortization expenses x xxx xxx
Other Expenses x xxx xxx
5 Total Expenses x xxx xxx
6 Profit Before Exceptional and Extraordinary Items and Tax (3-5) x xxx xxx
7 Extra Ordinary Items x xxx xxx
8 Profit Before Tax (6-7) x xxx xxx
9 Tax Expense:
Current x xxx xxx
Deferred x xxx xxx
Total x xxx xxx
10 Profit(or loss) from continuing operations (8-9) x xxx xxx
11 Profit(or loss) from discontinued operations operations x xxx xxx
12 Tax expense for Discontinued operation x xxx xxx
13 Profit(or Loss) from discontinued operation after Tax (11-12) x xxx xxx
14 Profit for the Period (10+11) x xxx xxx
15 Earning per Equity Share
Basic x xxx xxx
Diluted x xxx xxx

Balance Sheet – 

  • A balance sheet is a financial statement that summarizes a company’s assets, liabilities and shareholders’ equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by shareholders.
  • The balance sheet adheres to the following formula:
    Assets = Liabilities + Shareholders’ Equity

Format of Balance Sheet 
Balance Sheet
Name of Company………
Balance Sheet as on ……
(Rupees in……)
Particulars Note No. Figures of Current Year Figures of Previous Year
1. Equity and Liabilities
1 Shareholder’s Fund
a Share Capital x xxx xxx
b Reserve & Surplus x xxx xxx
c Money Received against Share Warrants x xxx xxx
2 Share Application Money Pending Allotment x xxx xxx
3 Non Current Liabilities
a Long Term Borrowings x xxx xxx
b Deferred Tax Liabilities (Net) x xxx xxx
c Other Long Term Liabilities x xxx xxx
d Long Term Provisions x xxx xxx
3 Currrent Liabilities
a Short Term Borrowings x xxx xxx
b Trade Payables x xxx xxx
c Other Current Liabilities x xxx xxx
d Short Term Provisions x xxx xxx
Total xxx xxx
1 Non Current Assets
a Fixed Assets
(1) Tangible Assets x xxx xxx
(2) Intangible Assets x xxx xxx
(3) Capital Work in Progress x xxx xxx
(4) Intangible Assets under development x xxx xxx
b Non Current Investments x xxx xxx
c Deffered Tax Assets (Net) x xxx xxx
d Long Term Loan and Advances x xxx xxx
e Other Non-Current Assets x xxx xxx
2 Current Assets
a Current Investments x xxx xxx
b Inventories x xxx xxx
c Trade Receivables x xxx xxx
d Cash & Cash Equivalents x xxx xxx
e Short term Loan and advances x xxx xxx
f Other Current Assets x xxx xxx
Total xxx xxx

Notes to Account-
  • Notes to account refer to additional information provided in a company’s financial statements. Notes to account report the details and additional information that are justify out of the main reporting documents, such as the balance sheet and income statement. This is done mainly for the sake of clarity because these notes can be quite long, and if they were included, they would cloud the data reported in the financial statements.
  • Notes to accounts shall contain information in addition to that presented in the Financial Statements and shall provide where required (a) narrative descriptions or disaggregations of items recognized in those statements and (b) information about items that do not qualify for recognition in those statements.
  • Each item on the face of the Balance Sheet and Statement of Profit and Loss shall be cross-referenced to any related information in the notes to accounts. In preparing the Financial Statements including the notes to accounts, a balance shall be maintained between providing excessive detail that may not assist users of financial statements and not providing important information as a result of too much aggregation.
Cash Flow Statement-
  • Cash flow statement is a summary of cash receipts and cash payments for accounting period.
  • In financial accounting, a cash flow statement, also known as statement of cash flows, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing and financing activities. 
  • Essentially, the cash flow statement is concerned with the flow of cash in and out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet. 
  • As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills.
Statement of Changes-in-Equity –
  • The statement explains the changes in a company’s Share Capital, accumulated reserves and retained earnings over the reporting period. It breaks down changes in the owners’ interest in the organization, and in the application of retained profit or surplus from one accounting period to the next. Line items typically include profits or losses from operations, dividends paid, issue or redemption of shares, revaluation reserve and any other items charged or credited to accumulated other comprehensive income. It also includes the Non-Controlling Interest attributable to other individuals and organisations.

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