What are Financial Statements?
Financial Statements are the end products of the Accounting Process, Which reveals the financial results of the specified period.
- Components of Financial Statement
- Income Statement
- Manufacturing Account
- Trading Account
- Profit and Loss Account
- Statement of Financial Position
- Balance Sheet
Why are Financial Statements important for business
- Financial transparency
- Evaluate tax-liability
- Mitigate error
- Improved payment cycle
- Build trust
- Better Decision Making, planning, and forecasting.
Step to start Maintaining Financial Statement.
- Identify the Company / Business characteristics.
First, determine a value chain analysis for the Company / Business —the chain of activities involved in the ideation, validation, manufacture, services and distribution of the firm’s products and/or services.
- Identify company/business transaction.
Next, look at the transaction for the product/service being offered by the company, including the uniqueness and nature of transaction like B2C, B2B & C2C, level of profit margins, a creation of brand loyalty and control of costs.
- Assess the rule and regulation for industries.
The rule and regulation for industries is a formal declaration by the company whereby it outlines its general policies for business. The main objective of any rule and regulation is to augment the business production/service and thereby enhance the Business growth which leads to economic Review. To see financial statements within the context of the Business which is the relevant accounting standards as per any business.
- Analyze current profitability and risk.
This is the step where financial professionals can really add value to the evaluation of the firm and its financial statements. The most common analysis tools are key financial statement ratios relating to liquidity, asset management, profitability, debt management/coverage and risk/market valuation.
- Assess the tax structure and compliance’s for company/business.
Income tax rates on partnership firms, corporate income tax, income tax on co-operative societies and Local Authorities in India, EC & SHEC Tax Return is the form in when assesses files information about his Income and tax thereon to income tax. Various forms are ITR 1, ITR 2, ITR 3, ITR 4, ITR 5, ITR 6 and ITR 7.
- Income tax on Partnership firms/ Limited Liability Partnership (LLP)
| Income range | Tax rate | Surcharge* | EC & SHEC [% on (tax + surcharge)] |
| Up to Rs. 1,00,00,000 | 30% | Nil | 3% |
| More than Rs. 1,00,00,000 | 30% | 12% | 3% |
2. Corporate income tax
- Domestic Company
*Income tax rate is 29% if turnover for the financial year 2014-15 is below Rs. 5,00,00,000.
| Income range | Tax rate | Surcharge* | EC & SHEC [% on (tax + surcharge)] |
| Up to Rs. 1,00,00,000 | 30% | Nil | 3% |
| More than Rs. 1,00,00,000 but, Less than Rs. 10,00,00,000 | 30% | 7% | 3% |
| More than Rs. 10,00,00,000 | 30% | 12% | 3% |
- Foreign Company
| Income range | Tax rate | Surcharge* | EC & SHEC [% on (tax + surcharge)] |
| Up to Rs. 1,00,00,000 | 40% | Nil | 3% |
| More than Rs. 1,00,00,000 but, Less than Rs. 10,00,00,000 | 40% | 2% | 3% |
| More than Rs. 10,00,00,000 | 40% | 5% | 3% |
- Income tax on Co-operative Societies
| Income range | Tax rate | Surcharge* | EC & SHEC [% on (tax + surcharge)] |
| Up to Rs. 10,000 | 10% | Nil | 3% |
| Rs. 10,000 – Rs. 20,000 | 20% | Nil | 3% |
| Rs. 20,000 – Rs. 1,00,00,000 | 30% | Nil | 3% |
| More than Rs. 1,00,00,000 | 30% | 12% | 3% |
- Income tax on Local Authorities
| Income range | Tax rate | Surcharge* | EC & SHEC [% on (tax + surcharge)] |
| Up to Rs. 1,00,00,000 | 30% | Nil | 3% |
| More than Rs. 1,00,00,000 | 30% | 12% | 3% |
- Prepare foretasted financial statements.
CA/CS/ICWA must make reasonable assumptions about the future of the company/industry finance and determine how these assumptions will impact both the cash flows and the fund flow.
- Value the firm.
There are many valuation approaches, the most common is a type of discounted cash flow methodology. when we are maintaining financial statement then we always keep in mide that company value and growth.
