Preparation and Adoption of Financial Statements
Every year, a company is required to compile its financial transaction incurred during the financial year and structure them. This structuring is in the Form of preparation of Balance Sheet and Profit and Loss account of the Company. Balance Sheet is a statement which shows the position of assets and liabilities of the Company on a particular date i.e. on the date of closure of financial year 31st March. Whereas the Profit and Loss Account is a statement showing the total income earned and expenditure incurred by a company during the financial year.Let us understand the procedure of finalization of financial statements and adoption thereof.
Preparation and Finalisation of Financial Statements
For the purpose of finalization of financial statements, the very first thing is to close the books of account. Closure of Books of Account means to account for all the income earned and expenses incurred against those income during the financial year.
Pursuant to Section 2 Sub-section 41of the Companies Act, 2013, “financial year”, in relation to any company or body corporate, means the period ending on the 31st day of March every year. All income earned during the year is to be duly considered and classified as Direct and Indirect income. Pursuant to Realization Concept of Accounting,income to be booked only on accrual basis. Hence, Advance is not to be considered as profit until the completion of transaction and the profit is actually earned. However, expenses to be considered even if not incurred. The basic idea is to find out the actual position of the Company and to calculate the actual profit earned by the Company. Hence income actually earned is taken into account and all expenses whether incurred or not is to be taken to derive the actual position of the Company.Therefore, at the end of the financial year, every company tries to get it books closed by proceeding as follows:
- Take into consideration all the income earned during the year
- Accounting for all possible expenses related to the income earned
- Valuation of Stock as on 31st March
- Valuation of all the investments as on 31st March
- Provision of expenses to be incurred such as audit expenses, filing expenses related to the financial year.
- Calculating the tax to be paid on the income so earned
Once the data is complied, draft financial statement i.e. Balance Sheet, Profit and Loss account; and Cash Flow Statement, statement of changes in equity and any explanatory statement annexed with all the above statement shall be prepared and placed before the Board for approval. After consideration by Board, the signed statements are to be provided to the statutory auditor of their comments and remark. The Statutory Auditor of the Company shall audit the financial statement and will send the audited financial statement along with their comments and remarks in the form of Audit report to the Board. The Board will then consider the audit report and any clarification with regard to the comments and remarks of the statutory auditor shall be made in the Directors report of the Company.Thereafter, at the Annual General Meeting of the Members, the Financial Statement and Director Report will be placed for their adoption.
Procedure for Preparation and Adoption of Financial Statements
Preparation of Finalization of financial Information is of utmost important as the same help to analyses and identify the position and performance of the Company.This procedure need to be kept in mind while preparing the notice, agenda and minutes of the Company. This will help one to draft the documents in correct manner and sequence.Conclusion:
Hope we helped you to get to understand the concept of finalization and adoption of financial statement, if you are still in dilemma, do contact us at firstname.lastname@example.org