Financial statements of a company

The essentials

Every company prepares its Balance Sheet and Statement of Profit and Loss in the form given in Schedule III of the Companies Act, 2013, with details in Notes to Accounts. The Balance Sheet has two parts: Equity and Liabilities, and Assets. Items are classified as current or non-current using the operating cycle; when the operating cycle cannot be identified, it is assumed to be twelve months.

Key points

• Equity and Liabilities: Shareholders' Funds (share capital; reserves and surplus; money received against share warrants), Share Application Money Pending Allotment, Non-current Liabilities (long-term borrowings, deferred tax liabilities, other long-term liabilities, long-term provisions), Current Liabilities (short-term borrowings, trade payables, other current liabilities, short-term provisions).
• Assets: Non-current Assets (property, plant and equipment and intangible assets, non-current investments, long-term loans and advances, other non-current assets), Current Assets (current investments, inventories, trade receivables, cash and cash equivalents, short-term loans and advances, other current assets).
• Statement of Profit and Loss: Revenue from operations, Other income, Expenses (cost of materials consumed, purchases of stock-in-trade, changes in inventories, employee benefits expense, finance costs, depreciation and amortisation expense, other expenses), then profit before tax, tax expense and profit for the period.
• Trade receivables include debtors and bills receivable; trade payables include creditors and bills payable.
• Loose tools and stores and spares are shown under inventories.

Exam tips

For each item, first decide the side (liability or asset), then current or non-current, then the sub-heading.

Common mistakes

• Showing bank overdraft under cash and cash equivalents; it is a short-term borrowing.
• Showing goodwill under current assets.