Short answer: Companies prepare the balance sheet and profit and loss statement in the format of Schedule III to the Companies Act, 2013: Division I if they follow Accounting Standards (AS) and Division II if they follow Ind AS. Proprietors, partnership firms and LLPs usually follow the format in the ICAI Guidance Note on Financial Statements of Non-Corporate Entities. All formats show equity and liabilities on one side and assets on the other, split into non-current and current items.
Main headings (Schedule III, Division I)
| Equity and liabilities | Assets |
|---|---|
| Shareholders' funds (share capital, reserves and surplus) Non-current liabilities (long-term borrowings, long-term provisions) Current liabilities (short-term borrowings, trade payables, other current liabilities, short-term provisions) |
Non-current assets (property, plant and equipment, intangible assets, non-current investments, long-term loans and advances) Current assets (inventories, trade receivables, cash and cash equivalents, short-term loans and advances) |
For a firm or proprietor, “shareholders' funds” is replaced by partners' or owner's capital and current accounts.
Profit and loss statement
Revenue from operations and other income, less expenses (cost of materials or purchases, change in inventories, employee benefits, finance costs, depreciation, other expenses), gives profit before tax; tax expense is then deducted to reach profit for the year.
Cash flow statement
Companies prepare a cash flow statement under AS 3 or Ind AS 7, usually by the indirect method (start from profit, adjust non-cash items and working capital). A small company and a one person company are not required to include it (section 2(40) of the Companies Act). For non-corporate entities the ICAI guidance gives exemptions to smaller entities.
From books to statements
- Record transactions in day books and post them to ledgers.
- Prepare a trial balance from the ledger balances.
- Make adjustments (closing stock, depreciation, outstanding and prepaid items).
- Arrange the balances in the balance sheet and P&L format, with notes.
Frequently asked questions
Does a proprietor need a balance sheet?
If the books of account are required to be kept under section 44AA, or for a bank loan, yes. Under presumptive taxation (44AD/44ADA) the ITR asks only for some balance sheet figures, but banks usually still ask for full statements.
Must the balance sheet be audited?
Companies are always audited. Others need a tax audit under section 44AB when turnover or receipts cross the limits, and LLPs need an audit when turnover exceeds ₹40 lakh or contribution exceeds ₹25 lakh.
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Official sources
Rules on this page come from these official government sources. Check them for the latest position.
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Last updated: 7 November 2026. Published by S Jha Legal Sansar & Associates. Rules as applicable for FY 2025-26 accounts; laws change, so check the official source before you act. Editorial policy · Disclaimer