A balance sheet is one of the most important financial statements, which gives a snapshot of the company's health in terms of finances. It shows what the company owns, what it owes, and the value remaining for its shareholders. The format of the balance sheet in India is governed by the Companies Act, 2013 and the Indian Accounting Standards (Ind AS). Business owners, accountants, and investors need to know the balance sheet format. It enables one to understand the solvency, financial health, and ability to pay off debts by a company. 

This article will focus on the main elements of the balance sheet format in India. It shows the regulatory requirements and how it reflects a company's financial health. We will also take into account the differences between the traditional Schedule III format under the Companies Act and the balance sheet formats used by smaller businesses, as well as the impact of Ind AS (Indian Accounting Standards). 

What is a Balance Sheet?

A balance sheet is a financial statement that reports the company’s financial position at a particular moment in time. It reflects the company’s:

• Assets (what the company owns)

• Liabilities (what the company owes)

• Shareholders' Equity (the owner’s residual interest in the company)

The balance sheet is divided into two main sections: Assets and Liabilities & Equity, and must balance per the accounting equation:

Assets = Liabilities + Shareholders' Equity

Know What is the Complete Checklist for Company Incorporation

Key Features of a Balance Sheet

• Snapshot of Financial Health: Provides insights into the company’s solvency and liquidity.

• Time-Specific: It expresses the financial position at a point in time, unlike an income statement, which is spread over a period of time.

• Double Entry System: It reflects the fundamental accounting principle that every debit has a corresponding credit.

 Are you interested in pursuing a career in Law? The Legal School in collaboration with IndusLaw has created unique programs for a Certification in Mergers & Acquisitions, Private Equity and Venture Capital Laws & Certification in Mergers & Acquisitions for fresh law graduates as well as professionals looking to advance in their careers! Enquire now for details!

Major Components of the Balance Sheet Format in India

The balance sheet format in India is structured into two major parts: Assets and Liabilities (including shareholders' equity). The classification under these categories follows the provisions of Schedule III of the Companies Act, 2013. It specifies the presentation and format of financial statements.

A. Assets

Assets are resources owned by a company that are expected to bring future economic benefits. They are broadly classified into two types:

1. Non-Current Assets (Fixed Assets or Long-Term Assets)

• Property, Plant, and Equipment (PPE): Tangible assets like land, buildings, machinery, etc.

• Intangible Assets: Non-physical assets like patents, goodwill, and trademarks.

• Investment Property: Property held for rental income or capital appreciation.

• Long-Term Investments: Investments expected to be held for more than one year.

2. Current Assets (Short-Term Assets)

• Cash and Cash Equivalents: Money in hand, bank balances, etc.

• Inventories: Goods or raw materials intended for sale or production.

• Trade Receivables: Amounts due from customers within one year.

• Short-Term Investments: Investments that are likely to be liquidated within a year.

• Other Current Assets: Any other assets expected to be converted into cash within one year.

B. Liabilities

Liabilities represent the obligations that the company has towards outsiders. It is also divided into two categories:

1. Non-Current Liabilities (Long-Term Liabilities)

• Long-Term Borrowings: Loans and debt obligations with a repayment period beyond one year.

• Deferred Tax Liabilities: Taxes owed but not yet paid.

• Other Non-Current Liabilities: Any other long-term financial obligations, such as pension liabilities.

2. Current Liabilities (Short-Term Liabilities)

• Short-Term Borrowings: Loans that need to be repaid within a year.

• Trade Payables: Amounts due to suppliers or creditors within a year.

• Other Current Liabilities: Other short-term financial obligations, including accrued expenses.

• Provisions: Amounts set aside for specific liabilities, such as warranties or pending lawsuits.

Also, Read about How Directors are appointed in a Company?

C. Shareholders' Equity

Equity represents the ownership interest in the company. It is calculated as:

Equity = Total Assets - Total Liabilities

Components include:

• Share Capital: Amount invested by shareholders.

• Reserves and Surplus: Retained earnings and other reserves that the company has accumulated over time.

• Other Equity Items: Includes items like securities premium, revaluation reserves, etc.

Also, Get to Know How does Transfer of Shares Under Companies Act, 2013 Works!

The Schedule III Format of the Balance Sheet in India

According to the Companies Act, 2013, companies are bound to prepare their balance sheets using the format given in Schedule III. The format lays down the structure, headings, and subheadings of assets, liabilities, and equity.

The Schedule III format is divided into the following two parts:

• Part I: Balance Sheet – This balance sheet is further split into two parts: Equity and Liabilities and Assets.

• Part II: Statement of Profit and Loss – This section provides the company's income and expenditure for the reporting period.

Effect of Indian Accounting Standards on Balance Sheet Format

The introduction of Ind AS has affected the preparation of financial statements by companies in India. Ind AS is an effort to align the accounting standards of India with International Financial Reporting Standards (IFRS). This makes them comparable and consistent.

Some of the major changes brought about by Ind AS are:

• Fair Value Measurement: Ind AS mandates the recognition of certain assets and liabilities at fair market value rather than historical cost.

• Financial Instruments: Ind AS has added specific provisions for accounting rules for financial instruments, namely derivatives and hedge accounting

• Revenue Recognition: Ind AS mandated a more detailed and structured methodology for the recognition of revenues, especially for long-term contracts.

• Leases: Ind AS 116 has modified the treatment of leases so that there is a recognition of lease liabilities and assets on the balance sheet.

Also, Get to Know the Key Provisions of Wages Act 1936

Balance Sheet Format Example

Here’s a simple example of how the balance sheet might look:

Balance Sheet for XYZ Pvt Ltd as of 31st March 2024

Summing Up

The balance sheet format in India is well-structured to provide a transparent view of the financial standing of a company. Consistency and comparability are ensured with the guidelines of the Companies Act, 2013, and Ind AS. Understanding the balance sheet format is vital for business owners and investors. It helps them in making informed decisions and assessing a company's financial health.

Learn What is Article of Association (AOA) of a Company

Balance sheet Format India: FAQs

Q1. What is a balance sheet?

A balance sheet is a financial statement that presents a company's financial health. It shows a company's assets, liabilities, and shareholder's equity at a particular time

Q2. What is the balance sheet format in India?

In India, the balance sheet format is as prescribed by Schedule III of the Companies Act, 2013. It is further divided into Equity & Liabilities and Assets sections.

Q3. What are the main sections of a balance sheet?

The main sections include Shareholders' Funds, Non-Current Liabilities, Current Liabilities, Non-Current Assets, and Current Assets.

Q4. What is the difference between non-current and current liabilities?

Non-current liabilities are due after more than one year, while current liabilities are due within one year.

Q5. Why is the balance sheet important?

It helps in judging the financial health of a company. Balance sheet shows the financial position, including assets, liabilities, and equity.