Home Articles Articles Financial Statements - Balance SheetFinancial Statements - Balance Sheet

Financial Statements - Balance Sheet

IndianMoney.com Research Team | Updated On Tuesday, September 23,2014, 11:41 AM
5.0 / 5 based on 1 User Reviews

Financial Statements - Balance Sheet

Financial statements provide an overview of a business' financial condition in both short and long term. All the relevant financial information of a business enterprise, presented in a structured manner and in a form easy to understand, are called the financial statements. These are the final product of accounting work done during the accounting period i.e. quarterly, half yearly or annually. By this the accounting information is communicated to the external users. It includes three basic financial statements namely :

  • 1. Profit and Loss Account
  • 2. Balance Sheet
  • 3. Cash Flow Statements

Although the general principles of preparing the final accounts of joint stock companies are the same as in the case of the sole proprietorship or partnership firms, but in addition to these principles, a joint stock company must confirm to certain legal provisions as given in the Indian Companies Act 1956.

Every company must prepare final accounts every year. At every annual general meeting of a company, the Board of Directors of the company shall lay before the company (a) a Balance Sheet as at the end of period (b) a Profit and Loss Account for that period. In case, a company is not carrying on business for profit, an Income and Expenditure Account shall be laid before the company at its annual general meeting instead Profit and Loss Account. The report of Auditor and Board of Directors should be attached to every Profit and Loss Account and Balance Sheet. Enterprises having a turnover in excess of Rs. 50 crores have to attach Cash Flow Statement and Segment Report with the annual accounts.

A Balance Sheet is a statement of assets and liabilities indication the financial position of an enterprise at a given date.
A Profit and Loss Account shows the net result of business operations during an accounting period.
A Cash Flow Statement shows a company's cash flow activities, namely operating, investing and financing activities.

Schedules have the details of amounts in the Balance Sheet and Profit and Loss Account, while the notes are the statements of accounting polices adopted and explanation of material information.

Application of Schedule VI of the Companies Act :

The form and contents of Balance Sheet and Profit and Loss Account are governed by Section 211 of the Companies Act, 1956.

Section 211 (1):


According to this section every Balance Sheet must give true and fair view of the state of affairs of the company as at the end of the financial year and to be in the form set out in Part I of Schedule VI or as near thereto as circumstances permit or in such form as may be approved by the Central Government.

Section 211 (2):


According to this section every Profit and Loss Account must give true and fair view of the profit or loss of the company for the financial year and shall comply to with the requirement of Part II of Schedule VI, so far they are applicable.

Balance Sheet

In the simplest form, a Balance Sheet may be defined as a statement of company’s assets and liabilities as on a particular date. Thus, we can say a balance sheet is a snapshot of the company's financial position at a single point in time. The assets of the company, fixed assets and current assets, are represented by the liabilities, long-term liabilities and short-term liabilities, and the share holders equity, i.e., paid up share capital and reserves.

How to read a balance sheet

A balance sheet, also known as a "statement of financial position", reveals a company's assets, liabilities and owners' equity (net worth). The balance sheet, together with the income statement and cash flow statement, make up the cornerstone of any company's financial statements. If you are a shareholder of a company, it is important that you understand how the balance sheet is structured, how to analyze it and how to read it.

The balance sheet is divided into two parts that, based on the following equation, must equal (or balance out) each other. The main formula behind balance sheets is:
Assets = Liabilities + Shareholders' Equity

This means that assets, or the means used to operate the company, are balanced by a company's financial obligations (liabilities) along with the total equity investment brought into the company.
A typical Balance Sheet looks like this :

Condensed Consolidated Balance Sheet
as at 30 June 2008
(Currency: in thousands of Indian Rupees except share data)

 

June 30,2008

31 December 2007

SOURCES OF FUNDS

   

Shareholders' funds

   

Share capital

278,124

278,019

Share application money

44

1,815

Reserves and surplus

28,791,373

27,081,659

 

29,069,541

27,361,493

     

Loan funds

   

Secured loans

23,252

23, 785

 

31,477

21,459

 

29,124,270

27,406,737

     

APPLICATION OF FUNDS

   

Goodwill

4,553,256

4,278,413

     

Fixed assets

   

Gross block

11,274,598

10,240,277

Less : Accumulated depreciation

4,693,937

4,099,918

Net block

6,580,661

6,140,359

Capital work-in-progress

2,450,224

2,177,028

 

9,030,885

8,317,387

 

   

Investments

12,368,013

11,516,778

     

Deferred tax asset, net

765,339

592,741

Did you find this article useful? You can Rate us
5.0 / 5 based on 1 User Reviews
Article Author

IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

/
Love Beyond Death Get It now!
 

How about our new look!

 
Great!
Mm.. Ok
Bad
 

Please select a category

Please write your feedback and suggestions