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Financial Statements - Balance Sheet Research Team | Updated On Tuesday, September 23,2014, 11:41 AM
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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



Shareholders' funds


Share capital



Share application money



Reserves and surplus







Loan funds


Secured loans


23, 785














Fixed assets


Gross block



Less : Accumulated depreciation



Net block



Capital work-in-progress












Deferred tax asset, net



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