A financial statement is a periodic report prepared from the accounting records of a company. Financial statement include the profit & loss statement (or income statement), the balance sheet. Financial statements are usually compiled on a quarterly basis or on an annual basis.
Profit and Loss Account is a report of carrying on business during a certain period. The Companies Act, 1956 does not give any standard form in which this account is to be prepared. In practice, Profit and Loss Account is prepared in different forms based on the needs of the business. Whatever form of Profit and Loss Account may be, various items of income and expenditure of the business should be under the most convenient heads. The Profit and Loss Account must exhibit a true and fair view of the profit earned or loss incurred by the company during the year for reporting convenience, the Profit & Loss account is divided into.
The trading account is prepared to arrive at the gross profit earned by the organisation over a specified period. This helps the organisation to arrive at the cost of core activity & calculate the direct profit from its operations.
For preparing the Balance Sheet of a company, same principles are followed as for the Balance Sheet of a sole proprietor or a partnership firm. The main principle is that the Balance Sheet must exhibit a true and fair view of the financial position of the company at the close of the year concerned. This means that the position shown should not be better or worse than the actual position. Assets and Liabilities must be shown at their proper figures‑neither inflated nor deflated.
The balance sheet is a statement that summaries assets & liabilities of a business. The excess of assets over liabilities is the net worth of a business.
The balance sheet provides information that helps in assessing a company’s.
Long –term financial strength.
Efficient day-to- day working capital management.
Sustainable long – term performance.
The balance sheet of all real, personal & nominal (capital in nature) accounts are transferred from trial balance & grouped under the major heads of assets & liabilities. The balance sheet is complete when the net profit/loss is transferred from the profit & loss account.
The prescribed form of the Balance Sheet has been given in Part I of Schedule VI of the Companies Act, 1956.
Company's Balance Sheet has to be prepared according to schedule VI prescribed under the Companies Act 1966,
There is no such schedule prescribed in the Partnership Act.
Company's Balance Sheet has to be audited by a Chartered Accountant.
Audit of firm's balance sheet is not necessary, however if turnover exceeds certain limit then it becomes mandatory to audit the books of accounts.
Read more about accounting course offered by IPA