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Financial Statements Preparation

Accounting and Reconciliations

Preparation and presentation of financial statements of a business is important to analyse the financial performance and position of assets and liabilities. Financial statements form the base report for business valuation and ROI assessment. Periodical preparation and evaluation of financial statements is critical to ensure business is financially strong and well performing.

Preparation of financial statements means checking and reconciling the books of the business and ascertaining the financial standing and profitability. The finalisation of accounts normally takes place at the end of the financial year.

The statements to be prepared for the finalisation of accounts are as follows:

  • Trading Account
  • Profit and Loss Account
  • Balance Sheet
  • Cash Flow Statements

The financial statements are of key importance to:

  • Management: Financial statements help comprehend the prospects, position and progress of the business.
  • Shareholders: They need to know the standing of the business to know their return on investments and hence financial statements are presented during the annual general meeting for adoption.

Financial Statements are also beneficial for the following individuals or groups:

  • Investors
  • Banks/Lenders
  • Customers
  • Suppliers
  • Governments
  • Employees

The derivations from the financial statement are as follows:

  • Gross Profit or Gross Loss generated by the client.
  • Net Profit or Net Loss
  • The value of current assets, fixed assets and total assets
  • The value of outside liabilities, long-term liabilities and current liabilities.
  • The equity position; share capital, shareholder's current capital, loans, if any, given by the shareholders. Valuation of the share capital.
  • The profit accumulation or loss accumulation from the date the company came into existence or called retained earnings
  • The cash inflows and outflows during the financial year.

The steps to be taken for the preparation of financial statements are:

  • To check whether the opening balances are rightfully posted at the start of the financial year.
  • Preparation of the Bank Reconciliation Statement
  • Confirm sales, purchases, output tax and input tax with the GST returns
  • Clearing off suspense accounts
  • Analysis of the stock entered at Cost or NRV, whichever is lower.
  • Extract the balance of seller and vendor ledgers and confirm their balances
  • Passing off bad debt entries after consultation with management
  • Reconcile cash balances and make sure that there are no negative balances
  • Validation of the new purchase of assets and their depreciation is accounted for and adjusted in the WDV method.
  • To check whether the interest on loans and investments are properly recorded.
  • Make provisions for outstanding and prepaid expenses.
  • Proper passing of business-related expenses.
  • To check the entries regarding personal expenses and their treatment.
  • Check petty cash expenses.
  • Payment of TDS and to check whether it has been paid up regularly.
  • Matching of TDS receivable with Form 26A
  • To check whether ESI, EPF and such other statutory dues are recorded and paid within the due date.
  • Compare the previous year's expenses with the current year's expenses and record the reason for the variation.
  • Entry of Narrations
  • Comparing the gross profit and the net profit of the current year with that of the previous year and recording the variations. Discussion of these variations with the management.

Preparation of financial statements is a process that has to be done with utmost care and consideration every year. Profito Global ensures that the process of finalisation of accounts takes place hassle-free. The clients need to provide Profito Global with the relevant books of accounts like ledgers from which the preparation of the financial statements takes place. The client can feel at ease as our experts are top-notch when it comes to filing books of accounts with the regulatory authorities.

  •  

    The financial statements are the window which shows the financial health and total performance of the business organisation. It also shows the standing of the company on the basis of its operation level and cash flow of the organisation. So, financial statements provide a complete understanding of the company's revenue, expenses, debt and profit levels. 

  • Business financials are used for:

    • Tax planning
    • Budgeting
    • MIS reporting
    • Pricing
    • Ascertaining the share values for shareholders
    • Financial statements are key for companies that have availed facilities from the banks
    • To ascertain the market share
    • For further scaling up of the business etc.
  • Yes, they require to prepare the balance sheet. A non-profit balance sheet is a financial statement submitted by a non-profit organisation. The financial statements help non-profit organisations to manage their expenses.

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