Balance Sheet and Cash flow Statement of Corporate entities manually and using appropriate software

1. Balance Sheet

Balance sheet provides a snapshot of a corporation’s financial position at a specific date, detailing assets, liabilities, and shareholders’ equity. It is structured in accordance with relevant Accounting Standards (AS) in India, or Indian Accounting Standards (Ind AS) if applicable.

Manual Preparation of Balance Sheet

1. Identify All Assets and Liabilities:

   • Classify assets as current or non-current based on AS 10 (Accounting for Fixed Assets) and AS 26 (Intangible Assets), or Ind AS 16 and Ind AS 38.
   • Classify liabilities into current or non-current as per AS 29 (Provisions, Contingent Liabilities, and Contingent Assets) and Ind AS 37.
2. Calculate Shareholders’ Equity:
   • Record share capital, reserves, retained earnings, and any accumulated other comprehensive income.

3. Follow Presentation Standards:

   • For entities under AS, refer to Schedule III of the Companies Act, 2013.
   • For Ind AS, Ind AS 1 (Presentation of Financial Statements) specifies presentation requirements.

4. Prepare and Review Notes to Accounts:

Add explanatory notes to clarify significant figures and ensure compliance with AS or Ind AS for disclosures.

Software Preparation of Balance Sheet:

Accounting software (like Tally, SAP, QuickBooks) is used widely to automate the balance sheet creation process. Steps are:

• Input Financial Transactions:

Transactions for income, expenses, assets, and liabilities.

• Define Ledgers and Chart of Accounts:

Create general ledger accounts in line with Ind AS or AS requirements.

• Generate Balance Sheet Reports:

With software automation, the balance sheet report can be generated directly, adhering to AS and Ind AS requirements by mapping transactions to the correct accounts.

2. Cash Flow Statement:

The Cash Flow Statement is divided into three main sections: Operating, Investing, and Financing activities. It shows the cash inflows and outflows and is prepared according to AS 3 (Cash Flow Statements) or Ind AS 7.

Manual Preparation of Cash Flow Statement

1. Operating Activities:

   • Use either the direct or indirect method (indirect is more common).
   • Adjust net income for non-cash items (depreciation, amortization) and changes in working capital.

2. Investing Activities:

   • Record cash flows from the purchase or sale of assets (AS 10 or Ind AS 16 guidelines) or investments.
3. Financing Activities:
   • Include inflows from borrowing or equity issuance and outflows from dividends or loan repayments.
4. Summarize Net Cash Flow:

Add up cash flows from all sections to determine the net cash movement.

Software Preparation of Cash Flow Statement:

• Accounting software provides templates for cash flow reporting by automatically pulling data from the income statement and balance sheet accounts.
• Software can classify transactions into the correct cash flow activities, reducing manual errors and ensuring compliance with AS 3 or Ind AS 7.
• Regular updates in software ensure compliance with current standards.

Relevant Accounting Standards (AS) vs. Indian Accounting Standards (Ind AS)

• AS:

Traditional Indian GAAP, applicable to smaller or non-listed companies.

• Ind AS:

Aligned with International Financial Reporting Standards (IFRS), mandatory for listed and large corporations.