Financial statements of a company (Schedule III)

A company cannot arrange its balance sheet as it likes. The law fixes the headings and their order, so that any reader can compare any two companies.

What the financial statements are

Under the Companies Act, 2013 the financial statements of a company include a balance sheet, a statement of profit and loss, a cash flow statement (for most companies), a statement of changes in equity where applicable, and the notes to accounts. Their form is laid down in Schedule III of the Act. They are prepared in vertical form: one column of figures for the current year and one for the previous year, with a note number against each line.

Balance sheet: Part I of Schedule III

Head	Sub-heads
I. EQUITY AND LIABILITIES
1. Shareholders' funds	(a) Share capital (b) Reserves and surplus (c) Money received against share warrants
2. Share application money pending allotment
3. Non-current liabilities	(a) Long-term borrowings (b) Deferred tax liabilities (net) (c) Other long-term liabilities (d) Long-term provisions
4. Current liabilities	(a) Short-term borrowings (b) Trade payables (c) Other current liabilities (d) Short-term provisions
II. ASSETS
1. Non-current assets	(a) Property, plant and equipment and intangible assets (b) Non-current investments (c) Deferred tax assets (net) (d) Long-term loans and advances (e) Other non-current assets
2. Current assets	(a) Current investments (b) Inventories (c) Trade receivables (d) Cash and cash equivalents (e) Short-term loans and advances (f) Other current assets

Property, plant and equipment and intangible assets are further divided into: property, plant and equipment; intangible assets; capital work-in-progress; and intangible assets under development.

Current and non-current

An asset is current if it is expected to be realised, sold or used within the company's normal operating cycle or within twelve months after the balance sheet date, is held mainly for trading, or is cash or a cash equivalent. A liability is current if it is due to be settled within the operating cycle or within twelve months. Everything else is non-current. The operating cycle is the time between acquiring materials and receiving cash from customers; where it cannot be identified it is taken as twelve months.

Where common items go

Item	Main head	Sub-head
Equity share capital, preference share capital	Shareholders' funds	Share capital
General reserve, securities premium, capital reserve, balance of Statement of Profit and Loss	Shareholders' funds	Reserves and surplus
Debentures, long-term bank loans, public deposits	Non-current liabilities	Long-term borrowings
Provision for employee benefits (long-term)	Non-current liabilities	Long-term provisions
Bank overdraft, cash credit, loans repayable on demand	Current liabilities	Short-term borrowings
Creditors, bills payable	Current liabilities	Trade payables
Outstanding expenses, unpaid dividend, interest accrued, calls in advance, current maturities of long-term debt	Current liabilities	Other current liabilities
Provision for tax	Current liabilities	Short-term provisions
Land, building, plant, furniture, vehicles	Non-current assets	Property, plant and equipment
Goodwill, patents, trademarks, computer software	Non-current assets	Intangible assets
Shares and debentures held for more than a year	Non-current assets	Non-current investments
Stock of raw materials, work in progress, finished goods, stores and spares, loose tools	Current assets	Inventories
Debtors, bills receivable	Current assets	Trade receivables
Cash in hand, bank balance, cheques in hand	Current assets	Cash and cash equivalents
Prepaid expenses, accrued income	Current assets	Other current assets

A debit balance of the Statement of Profit and Loss (accumulated loss) is shown as a negative figure under Reserves and surplus, not on the assets side.

Statement of profit and loss: Part II of Schedule III

Line	What it contains
I. Revenue from operations	Sale of products and services and other operating revenue
II. Other income	Interest, dividend, profit on sale of assets and other non-operating income
III. Total income (I + II)
IV. Expenses
Cost of materials consumed	Opening stock of materials + purchases − closing stock of materials
Purchases of stock-in-trade	Goods bought for resale
Changes in inventories of finished goods, work-in-progress and stock-in-trade	Opening inventory − closing inventory
Employee benefits expense	Salaries, wages, bonus, provident fund contribution, staff welfare
Finance costs	Interest on borrowings and related costs
Depreciation and amortisation expense
Other expenses	Everything else: rent, power, repairs, insurance, selling expenses, audit fees
V. Profit before tax (III − IV)
VI. Tax expense	Current tax and deferred tax
VII. Profit (loss) for the period (V − VI)

A small example

Classify and present these balances of Aravalli Ltd. as at 31 March 2026: equity share capital ₹10,00,000; general reserve ₹2,00,000; surplus (balance of Statement of Profit and Loss) ₹1,50,000; 9% debentures ₹4,00,000; trade payables ₹1,80,000; provision for tax ₹70,000; plant and machinery ₹11,00,000; goodwill ₹1,00,000; inventories ₹3,50,000; trade receivables ₹2,80,000; cash and bank ₹1,70,000.

Balance Sheet of Aravalli Ltd. as at 31 March 2026
Particulars		₹
I. EQUITY AND LIABILITIES
1. Shareholders' funds
(a) Share capital		10,00,000
(b) Reserves and surplus (2,00,000 + 1,50,000)		3,50,000
2. Non-current liabilities
Long-term borrowings (9% debentures)		4,00,000
3. Current liabilities
(a) Trade payables		1,80,000
(b) Short-term provisions (tax)		70,000
Total		20,00,000
II. ASSETS
1. Non-current assets
Property, plant and equipment		11,00,000
Intangible assets (goodwill)		1,00,000
2. Current assets
(a) Inventories		3,50,000
(b) Trade receivables		2,80,000
(c) Cash and cash equivalents		1,70,000
Total		20,00,000

Notes to accounts

Each line of the balance sheet and the statement of profit and loss gives only a total. The details are in numbered notes. The note on share capital, for example, shows authorised, issued, subscribed and paid-up capital, with calls in arrears deducted and forfeited shares added. The note on reserves and surplus lists each reserve with its opening balance, additions, deductions and closing balance.

Objectives and limitations of financial statements

They give information about financial position, performance and cash flows to shareholders, lenders, employees, government and the public.
They are the basis for ratio analysis and for comparative and common-size statements.
Limits: they are based on historical cost and ignore price changes; they leave out things that cannot be measured in money; they involve estimates and personal judgement; they show the position on one date only.

Check the current Schedule. Schedule III is amended from time to time by the Ministry of Corporate Affairs, and companies that follow Ind AS use Division II of the Schedule, with a different layout. This page follows Division I, the form taught at school level. The Act and Schedule are on mca.gov.in.

Questions students ask

Where is a bank overdraft shown in a company's balance sheet?

Under Current liabilities, in the sub-head Short-term borrowings.

Where is the debit balance of the Statement of Profit and Loss shown?

As a negative figure under Reserves and surplus, within Shareholders' funds.

What is an operating cycle?

The time between acquiring assets for processing and receiving cash from their sale. If it cannot be identified it is assumed to be twelve months.