Unit 3: Presentation of Financial Statement

Preparation of final accounts

The final accounts of a company include the Profit & Loss Account and the Balance Sheet. The format prescribed under the Companies Act, 2013 follows a vertical format for both. Below is a breakdown of how these accounts are prepared.

1. Profit & Loss Account (Vertical Format)

This statement shows the company's revenue, expenses, and profits during a given accounting period.

2. Balance Sheet (Vertical Format)

The balance sheet provides a snapshot of the company's assets, liabilities, and shareholders' equity at a specific point in time.

Key Components Explained

1. Profit & Loss Account

• Revenue: Income from the primary activities of the business.
• Expenditure: The costs incurred during the business operation.
• Profit Before Tax (PBT): The difference between income and expenses.
• Profit After Tax (PAT): Net profit after tax deduction.

2. Balance Sheet

• Non-Current Assets: Assets that are expected to provide economic benefits beyond one year (e.g., property, equipment).
• Current Assets: Assets that are expected to be converted into cash or used up within one year (e.g., cash, receivables).
• Equity: Shareholder's capital in the business.
• Liabilities: The company’s obligations, both long-term (e.g., loans) and short-term (e.g., payables).

The Profit & Loss Account and Balance Sheet in the vertical format provide a clear and concise financial statement, reflecting the company’s profitability and financial position as per the Companies Act, 2013.

Excel Application to make the Balance sheet

Creating a balance sheet in Excel is quite straightforward. Below are the steps to design a simple and functional Balance Sheet template:

Step-by-Step Guide

Open Excel

• Create a new workbook.
• Set the Structure

Divide the worksheet into two main sections:

• Assets on the left side
• Liabilities & Equity on the right side

Create Headers

• In Row 1, merge cells and type "Balance Sheet as of [Date]."
• Format it as bold and increase the font size for clarity.

Formulas to Use

Sum of Current Assets:

=SUM(B3:B5)

Sum of Non-Current Assets:

=SUM(B8:B9)

Total Assets:

=B6 + B10

Sum of Current Liabilities:

=SUM(E3:E4)

Sum of Non-Current Liabilities:

=SUM(E7)

Total Liabilities:

=E5 + E8

Total Liabilities & Equity:

=E9 + E13

Formatting Tips

• Use bold for section headings.
• Apply currency format to the amount columns.
• Use borders to clearly separate different sections.
• Highlight totals for better visibility. 

Preparation of Cash Flow Statement and its analysis

A cash flow statement shows the movement of cash and cash equivalents in a company over a specific period. It helps assess liquidity, operational efficiency, and financial stability.

What is a Cash Flow Statement?

A cash flow statement shows the movement of cash and cash equivalents in a company over a specific period. It helps assess liquidity, operational efficiency, and financial stability.

Structure of Cash Flow Statement

A cash flow statement is divided into three key components:

Steps for Preparation

1. Cash Flow from Operating Activities

• Start with Net Profit Before Tax
• Adjust for non-cash expenses like depreciation and provisions
• Adjust changes in working capital (current assets and liabilities)

Formula:

Net Operating Cash Flow = Net Profit + Non-cash Expenses + Changes in Working Capital

2. Cash Flow from Investing Activities

• Include cash spent or received from:
• Purchase or sale of property, plant, and equipment
• Investment in securities

Example:

Purchase of Equipment (Outflow) = (X)

Sale of Land (Inflow) = Y

3. Cash Flow from Financing Activities

• Cash from issuance or repayment of debt
• Dividends paid to shareholders
• Equity issuance

Example:

Loan Raised (Inflow) = X

Dividend Paid (Outflow) = (Y)