Financial Report Preparation

Financial Report Preparation Online

Running a business in India is exciting, but it also comes with responsibilities. One of the most important responsibilities is managing your finances properly. Whether you own a growing startup, a family-run shop, or a private limited company, financial reports play a major role in understanding the real health of your business. These reports help you track profits, watch expenses, plan for taxes, and make smart decisions for the future.

At Kanakkupillai, we help businesses prepare complete, accurate and reliable Financial Reports from scratch.

What is a Financial Report?

A financial report is a set of statements that shows the financial performance and financial position of a business during a specific period. It helps business owners understand:

• How is your business doing
• Whether you are making money or losing money
• How much cash do you have
• How much do others owe you
• How much do you owe to others
• Whether your business is financially healthy

Major Components of a Financial Statement

Financial statements usually consist of four primary reports:

• Balance Sheet
• Income Statement
• Cash Flow Statement
• Statement of Changes in Equity (or Retained Earnings)

1. Balance Sheet

This is the most important component of a financial statement. It answers three main questions:

• What does the company own? – Its assets
• What does the company owe? – Its liabilities
• What is left for owners of the company after paying off debts? – equity or capital

Assets are things that have value. It can be tangible or intangible. The company owns it because it has the potential to bring benefits in future. It can include inventory goods, equipment, bills, and more.

Assets = Liabilities + Equity

Assets are divided into two categories:

• Current assets: Cash and things easily turned into cash within a year (for example, stock, short-term deposits).
• Non-current (fixed) assets: Long-term things like land, buildings, and machinery.

Liabilities are the things that the business owes to others, such as loans, unpaid bills, or outstanding salaries. Like assets, liabilities are also of two kinds:

• Current liabilities: These liabilities are due for a shorter period, such as one year. It can be short-term loans, unpaid bills, etc.
• Long-term liabilities: These are obligations that are payable over a period longer than one year. It can be long-term bank loans, bonds, debentures, or lease obligations.

Equity: It is the owner’s share in the business when all the debts have been paid off and liabilities are cleared. If a company sell all its assets and uses that money to pay off everything it owes, whatever remains belongs to the owners or shareholders, that is equity. For example, if a company owns assets worth ₹50 lakh and owes ₹20 lakh in liabilities, then its equity is ₹30 lakh.

2. Income Statement

This is also called a profit and loss statement. It shows how much money a business earned and spent during a particular period. It lists all the income coming in and all the expenses going out. The main components of the Income Statement are:

• Revenue: This is the total income earned by the business.
• Cost of Goods (COGS): It is the direct cost spent on producing goods or services.
• Gross profit: This is what we get after subtracting COGS from revenue.
• Other Income and Expenses: This is the income from activities other than the main business, such as interest earned on bank deposits, or one-time expenses like equipment repair.
• Net Profit (or Loss): This is the final profit after deducting all expenses, salaries, rent, electricity, and other costs to run the business, interest, and taxes.

3. Cash Flow Statement

It shows how cash moves in and out of a business during a specific period. The cash flow statement tells about the actual cash flow, how much money really came in, and how much went out. It helps in understanding whether the business has enough cash to meet its short-term needs, pay salaries, buy supplies, and invest in growth. Component of the cash flow statement:

• Operating activities: Money coming in from customers and going out to suppliers, employees, and taxes.
• Investing activities: Cash spent on buying equipment, property, or investments, or received from selling them.
• Financing activities: Cash raised from issuing shares or loans, or used to pay dividends and repay debts.

4. Statement of Changes in Equity

It is also known as the Statement of Retained Earnings, and shows how the owners’ equity in a business changes over a specific period. It explains how much of the company’s profit was kept in the business, how much was distributed to shareholders, and how other changes (like issuing new shares or revaluation of assets) affected the total equity. Main components of the Statement of Changes in Equity are:

• Opening Balance of Equity: The amount of equity (owners’ capital) at the beginning of the accounting period.
• Profit or Loss for the Period: It is the profit earned from the income statement, then added to the equity – losses.
• New Share Capital Issued or Additional Investment: If the company issues new shares or the owner adds more capital, it increases equity.

Why are Financial Reports Important?

1. Smooth Income-Tax and GST Filing:

Accurate financial statements help in preparing:

• Income-tax returns
• GST returns
• Tax audit reports
• Advance tax estimation

2. Required by banks and investors:

If you apply for:

• Business loans
• Overdraft (OD)
• Cash credit (CC)
• Working capital loans
• Investment funding

Then, banks and investors will review your financial reports to assess your financial strength.

3. Helps in business planning:

Good financial reports help you:

• Forecast sales
• Control expenses
• Manage cash flow
• Plan expansion
• Set budgets

4. Ensures legal compliance:

Companies, LLPs, and registered businesses must prepare financial reports as per:

• Companies Act, 2013
• Income-tax Act, 1961
• GST law, 2017
• Accounting standards

Who Needs to Prepare Financial Reports in India?

• Private Limited Companies
• LLPs
• Partnership Firms
• Proprietorship Businesses
• Startups
• E-commerce Sellers
• Traders and Manufacturers
• Service Providers
• NGOs and Trusts
• Freelancers and Consultants

When should you Get Financial Reports prepared?

Ideally, you should prepare their financial statements:

1. Monthly
2. Quarterly
3. Half-Yearly
4. Annually