Financial Statement:

Financial statements are the basic and formal annual reports through which the corporate management communicates financial information to its owners and various other external parties which include investors, tax authorities, government, employees, etc. These refer to the balance sheet (position statement) as at the end of accounting period, the statement of profit and loss of a company and the cash flow statement

A financial statement is essentially a report card for a business's finances. It  summarizes the company's financial activities and health at a specific point in time or over a period of time.

  • Financial statements are important tools used by various stakeholders for different purposes. 
  • Investors use them to assess a company's financial health and make informed investment decisions. 
  • Lenders rely on them to determine a company's creditworthiness when considering loans. 
  • Managers use them to track the company's performance, identify areas for improvement, and make strategic decisions.

As per the Companies Act, The Financial Statements in relation to a company, includes:

  1. balance sheet as at the end of the financial year;
  2. profit and loss account, or in case of company carrying out activity not for profit, an income and expenditure account for the financial year;
  3. cash flow statement for the financial year;
  4. statement of changes in equity, if applicable; and
  5. any explanatory note annexed to, or forming part of, any document referred to above.   


Requirement of Financial Statement as per Companies Act

  • The Financial statement gives a true and fair view and comply with the Accounting standards (AS) and shall be in the form as provided in Schedule III of companies Act, 2013.

  • The FS shall be laid down in the AGM within six months from the end of the financial year

  • If a company contravenes with the above provisions, the Managing Director, the whole-time director in charge of finance, the Chief Financial Officer or any other person charged by the Board shall be punishable with imprisonment of one year or fine up to Rs.5 Lakh


Schedule III of Companies Act, 2013

Schedule III of the Companies Act, 2013 provides the manner in which the company registered under the Act should prepare its ‘Balance Sheet’, ‘Statement of Profit and Loss’ and ‘notes’.

Schedule III covers the following:

  1. General Instructions for Preparation of Balance Sheet and Statement of Profit and Loss of a Company
  2. Part I – Balance Sheet (format) along with general instructions for preparation of Balance Sheet
  3. Part II – Statement of Profit & Loss along with general instructions for preparation of Statement of Profit & Loss.

1. Which of the following financial statements provides a snapshot of a company's financial position at a specific point in time?

Income Statement
 Cash Flow Statement
Balance Sheet
Statement of Retained Earnings

2. What information does an Income Statement (Profit and Loss Statement) primarily conveys?

 Assets and liabilities
 Revenues and expenses over a period
Cash flow transactions
Changes in equity

3. Which financial statement shows how a company's retained earnings have changed over time?

 Balance Sheet
 Cash Flow Statement
Statement of Changes in Equity
 Income Statement