Financial Statements of a Company
Schedule III is prescribed by Companies Act, 2013 to provide the form of Balance Sheet, Statement of Profit & Loss and general instructions for preparation of financial statements. Part I of Schedule III prescribes the form of Balance Sheet and Part II prescribes the form for preparation of Statement of Profit & Loss. A Financial Statement is an organised collection of data according to logical and consistent accounting procedure. Financial Statements are prepared on the basis of recorded facts, accounting conventions, certain postulates and on personal judgments. Essentials of Financial Statements are that they should have correct information, understandability, verifiability, comparability and timeliness. Limitations of Financial statements are that they do not reflect current situation, are affected by personal judgment, qualitative information is omitted and is affected by window dressing. Internal users of Financial Statements are directly involved in managing and operating the business such as owners, management, employees. External users have present or future interest in business organisation. Example includes potential investors, banks, Government, etc.
Balance Sheet is a statement that reports the values owned by enterprise and also claims creditors and owners of the enterprise. Schedule III prescribes the vertical format of Balance Sheet. Only required information is given on face of the Balance Sheet, detailed information is to be disclosed in Notes to accounts. Statement of Profit & Loss shows net result of business operation and represents summary of revenues, expenses and net income or net loss during an accounting period. Capital structure of a business organisation consists of proprietors fund and borrowed fund. Provision is the amount written off or retained by way of providing for depreciation, renewal, etc. Reserve is the appropriation of profits created to meet unforeseen liability. Revenue Reserve is created out of profits that are earned in the course of day to day business operations whereas capital reserve is created out of capital profits that are not available for distribution as dividend.