TABLE OF CONTENTS

 Introduction

 Research Objectives

 Hypothesis

 Research Questions

 Research Methodology

 Literature Review

 General Introduction to Accounting

 Underastandig through Companies Act,2013

 Schedule III Companies Act,2013

 Format of Final Accounts

 Conclusion

 Bibliography

1
 INTRODUCTION
Final accounts is a statement which is necessary to be prepared by every company for
upkeeping the status of the financial stability of the company which shows whether the
company is in profit or loss. It s also necessary to record the daily transactions in the
business the which shows investment and expenditure which is needed to calculate the
financial stability of the company.

Final accounts involves or starts with the preparation of Trading account followed by profit
and loss account which is subsequently followed by balance sheet. To get a more precise and
clear perspective habe a look at the following points elaborating the term “Final
Accounts” :-

1. Where confirmity with the required keeping in mind the Act which includes Accounting
Standards as applicable to the companies require any change in treatment or disclosure
including addition, amendment, substitution or deletion in the head or sub-head or any
changes, inter se, in the financial statements or statements forming part thereof, the same
shall be made and the requirements of this Schedule shall be timely modified in keeping in
mind the time as and when required.
2. The disclosure requirements notifiedin this Schedule are an amendment or deletion to and
not in substitution of the disclosure requirements specified in the Accounting Standards as
notified accordingly under the Companies Act, 2013. Additional requirements specified in
the Accounting Standards shall be made in the notes to accounts or by way of additional
statement unless required to be disclosed on the face of the Financial Statements. Likewise,
all other disclosure requirement as specified by the Companies Act shall be made available
in

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the notes to accounts in addition to the requirements specified accordingly in this Schedule.

3. (i) Notes ofaccounts will contain additional information in addition to that presented (as
available in Companies act,2013) in the Financial Statements and shall be enforced
simultaneously where required:-

(a) narrative descriptions or disaggregation of items recognised in the underlying

statements; and

(b) Information about items that do not qualify or meet the requirements for recognition in
the financial statements.

(ii) Each item on the face of the Balance Sheet and Profit and Loss accounts can be cross-
referenced to any related information in the notes to accounts for any inconfirmity with the
financial standards. In preparation of Financial Statements or accounts including the notes to
or of the accounts, a balance shall be maintained between providing excessive detail that
may not assist users of financial statements and not providing important information as a
result of too much aggression.

4. (i) keeping in mind upon the turnover of the company, the numbers appearing in the
Financial Statements may be rounded off as given below:—

Turnover  Rounding off

To the nearest decimals, hundreds,
(a) <Rs. 100 Crore thousands or lakhs or
millionsthereof.
To the nearest decimals, lakhs, or
(b) more or equal to 100 Crore
millions or croresthereof.

(ii) The moment a unit of measurement is applied correctly, it 5[should] be used consistently
in the Financial accounts.

3
 5. Except in the case of the first Financial Statements or accounts laid down before the
Company (after its incorporation) the corresponding amounts (comparative figures) for the
immediately preceding reporting period for all items laid down in the Financial accounts or
statements including notes should also be given.

6. For the purpose of this Schedule, the terms appliedtherein should be as per the
Accounting Standards laid down by the law.

This part of Schedule lists out the necessary requirements for disclosure on the statements of
the Balance Sheet, and the Statement of Profit and Loss account (hereinafter referred to as
“Financial Statements” for the purpose of this Schedule) and Notes. Line items, sub-line
items and sub-totals shall be presented as an addition or substitution or amendments on the
notes of the Financial Statements or accounts when such statements or accounts is relevant
to the understanding of the company’s financial stability or position or performance or to be
able to provide for industry/sector-specific disclosure requirements or when required for
compliance with amendments in respect to the Companies Act or under the Accounting
Standards.

RESEARCH OBJECTIVES
The objectives of the research are:
1. To examine critically the concept of the term Final accounts to take into account the
responsibility of companies conduct throughout the year
2. To examine the voids in the India Law concerningaccountability of the Companies towards
investors, other states and entire legal community and the impact on the other law and
working of various international organizations.

HYPOTHESIS
The hypothesis of the researcher is that the present laws does capture the responsibility of
companies throughout the country to prepare such statements or accounts to the extent it is
necessary to adjudge the financial viability of the company .

4
 RESEARCH QUESTIONS
On the Basis ofhypothesis, the following research questions are framed:
1. What is the existing legal framework for the preparation of accounts with regard to the laws
mentioned in the Companies act, 2013?
2. Whether a company who has not maintained their books of accounts according to the rules
established by law will be punished or not?
3. Whether a country where the companies have established their business have made it
compulsory to keep a book of accounts?

RESEARCH METHODOLOGY
The Researcher has chosen the Doctrinal method of research. This paper adopts a
combination of analytical and descriptive methods.

LITERATURE REVIEW
“The accounting system of Zenon’s contained provisions for responsibility accounting, a
written record of all transactions, a personal account for wages paid to employees, Inventory
records and records of assets acquisition and disposal. In addition, there is the evidence, that
all accounts were audited.”1
“Double entry was first recorded in 1340 in Genoa. The first trader’s books containing
double entry related to the period 1410 to 1434.”2
“Statement o f profit and loss and statement of balances emerged about 1600.”5 Initially the
primary motive for separate financial statements was to obtain information regarding capital.
Consequently, balance sheet data were stressed and refined in various ways while expenses
and incomes data were viewed as incidental.3
1. Indian Accounting Standard and GAAP: In the book Indian Accounting Standard and
GAAP, Dolphy D’Souza makes a mix presentation of accounting theory and practice. In his
study he deals with Indian Accounting Standards not only from the view point of their
interpretation and practical application but also from the reference to the basic concepts on
which standards are underpinned. In the introductory part, he makes a brief description of

1
H.P. Haiti, A ccounting Control in the Zenon Papyri, The A ccounting R eview (O ct.’ 1966), p-foyy;
2
Andrew Higson, Corporate financial reporting, Theory and practice,, Sage Publication, 2003, (p-48);
3
A.C. Littleton; Accounting Education in 1900, New York, AICPA, 1993.

5
GAAP and the Indian GAAP4. He also discusses the various accounting standards as per
Income Tax Act 1961 and Companies Act 1956. Simultaneously, he includes the
consequence of needs of different new accounting standards due to changing business
environment. In the later part of the book, he makes an elaborate discussion of various
accounting standards, background for formulation of such standards and comparison o f
Indian Accounting Standards with International Accounting Standards and US GAAP. The
book is extremely helpful to give knowledge about Indian Accounting standards,
International Accounting Standards and U.S. GAAP.
2. Accounting Standards and Corporate Accounting Practice: T. P. Ghose, in his book,
Accounting Standards and Corporate Accounting practices presents the view on accounting
failures and trends of global financial reporting. He includes discussion on regulatory
mechanism in the various leading country of the world to have overview on regulatory
mechanism in global prospective, and efforts made by such regulatory bodies including
Securities Exchange commission (SEC), International Organization for Securities
Commission (IOSCO) and International Accounting Standard Board (IASB) to develop a
common set of accounting rules. He also makes various accounting practices done by Indian
corporate houses along with respective accounting standards. In his book, he includes some
other practices like employee stock options, corporate governance, accounting for
derivatives instruments, corporate environmental reporting, inflation accounting, etc. where
there is absence of Indian Accounting Standards. He published the book in two volumes, the
first volume covers global environment of financial reporting, financial statements and
twenty-nine accounting standards. The second volume covers some other'important
accounting issues like accounting for financial service industry, valuation and voluntary
disclosures, accounting failures including CARO, financial risks management and
complementary development. His book was undoubtedly an important contribution to the
field of accounting world but he fails to comment on suitability of accounting practice in
changing environment. Again, the book explains on what is rather than what should be.

GENERAL INTRODUCTION TO ACCOUNTING

4
Leuz and Verecchia (2004)

6
 1. Human Resource Accounting: It is the accounting for people as organizational resource.
It is the process of the measurement of cost and value of people for the organization.
Though, human resource accounting is primarily used as a managerial tool for effective
utilization and management of human capital, it is also helpful to external users in making
investment and other users in making long-term investment decisions. The concept of
human resource accounting is still new and authoritative pronouncement about measurement
and valuation of human assets is still absent.

3. Inflation Accounting: Inflation accounting is the process where the financial statement is
prepared taking into consideration effect of price level changes. As changing value of money
is the normal character, historical cost basis financial Review o f Literature 26 statement is
unable to reflect the actual results of business, so the need of inflation adjusted financial
statement considered in the inflationary environment.
4. Social Accounting:It is the measurement, reporting andidentificationof the economic and
social effects of an institution on the society. It is the reporting of cost of existence of an
institution and benefit of existence of such institution to the society.
5. Environmental Accounting: Environmental accounting, in the context of accounting is the
estimation and reporting of environmental liabilities and cost incurred to discharge such
liabilities. However, the concept of environmental accounting is not very much developed
due to lack of any regulation about measurement and disclosures by the accounting
regulators, but many corporate bodies try to use such practices.5 This brings environmental
accounting issue in the forefront. Now accounting has been developing in many areas that
are not related to measurement of profit and loss and financial position but is facilitate the
users of accounting information to take rational economic decisions.6

UNDERSTANDING THROUGH COMPANIES ACT, 2013

5
Ashbaugh and Pincus (2002)
6
Lang and Lundholm (1997)

7
 Amendment:
1. Substituted by the Companies (Amendment) Act,2017 :- Amendment Effective from
7th May 2018

In section 129, for sub-section (3) for the words:

Where a company has one or more subsidiaries, it shall, in addition to financial statements
provided under sub-section (2), prepare a consolidated financial statement of the company
and of all the subsidiaries in the same form and manner as that of its own which shall also be
laid before the annual general meeting of the company along with the laying of its financial
statement under sub-section (2):
Provided that the company shall also attach along with its financial statement, a
separate statement containing the salient features of the financial statement of its subsidiary
or subsidiaries in such form as may be prescribed:
Provided further that the Central Government may provide for the consolidation of accounts
of companies in such manner as may be prescribed.

Explanation.—For the purposes of this sub-section, the word “subsidiary” shall

include associate company and joint venture.

The following sub-section shall be substituted, namely :-

''Where a company has one or more subsidiaries or associate companies, it shall, in addition
to financial statements provided under sub-section (2), prepare a consolidated financial
statement of the company and of all the subsidiaries and associate companies in the same
form and manner as that of its own and in accordance with applicable accounting standards,
which shall also be laid before the annual general meeting of the company along with the
laying of its financial statement under sub-section (2):
Provided that the company shall also attach along with its financial statement, a separate
statement containing the salient features of the financial statement of its subsidiary or
subsidiaries and associate company or companies in such form as may be prescribed.

 “Provided further that the consolidation of accounts of companies may be provided by the
Central Government in the prescribed manner".7
7
http://ebook.mca.gov.in/Actpagedisplay.aspx?PAGENAME=17512

8
1. Financial statements preparation is provided by Section 129 of companies act 2013.
2. Section 2(40) illustrates to include statements ofloss and profit account/income, balance
sheetand cash flow statement, expenditure account, changes in equity statement and any
explanatorynote in furtherance to the above.
3. New section 129 after the amendment in congruous to thecurrent section 210. Financial
statementsare Elucidated by itor accounts will provide a fair and true understandingor
position or stability of the state of affairs of the company and will be in accordance with the
standards of accounting mentioned under new section 133.
4. Also a understanding provided that in the accounts orfinancial statementswill be made
presentable as given in the form prescribed in III schedule of Companies Act, 2013.
5. It should be taken note of that in theIII schedule the sections, sub-section along with proviso
and exceptions for preparation of statement of loss and profit accountsand balance sheet
accounts has been provided which are in consonance with the provision laid down in the old
act under VIschedule.
6. Moreover, in the new and upcoming III Schedule thorough guidelines have been made
available for thestatements of consolidated financial preparation sincemerging of subsidiary
company’saccounts is under section 129 made compulsory.
7. a provision has been made in the new section 129(3)for the first time and shall be brought to
the notice that in case the subsidiaries of a company is more than one then the company will
be required to make a combined financial statement of the company and its subsidiaries in
the provided form underthe IIIschedule of Companies Act, 2013.
8. As established by the rule of law the salient roles and features of thefinancials of the
subsidiary companies in a separate statement must be attacked along with its financial
statements bythe company,
9. The accounts of that company along with the joint venture shall be combinedif the company
has interest in any associate company or a joint venture.
10. For this purpose,section 2(6) has defined associate company which has major
influence on the decision of business under an agreement i.e. 20% of company’s total share
capital.
11 Any companies can be exempted from complying with any requirements of the section
by the central government.

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 Schedule III BALANCE SHEET AND STATEMENT OF PROFIT AND LOSS:
GENERAL INSTRUCTIONS

Generic (1)   Where in order to comply with the relevant provisions

Instructi of Act and Rules of Accounting requires alteration in
ons
regards to a company by disclosing, modifying, extending
in the head or subheading or any modification in final
report or thereof, the same is supposed to be made and the
provisions of the same shall change as well.(2)    The
requirements of disclosure given in this Standards of
Accounting in regards to the disclosure requirement come
through the prescription of Accounting Standards of ICA
2013. The disclosures that are additional and are specified
in the standards of accounting shall be given in notes to
accounts or in the form of additional statement unless the
requirement is to be disclosed on the face of the financial
statements. In a similar manner all the disclosures as
required by the ICA shall be made in accounting notes in
addition to what is required in this schedule.
3) (i) information in regards to notes to accounts shall be
there in addition to the one presented in financial
statements and provided where required.
a)      narrative descriptions or disaggregation’s of items
recognised in those statements; and
b)      Information about items that do not qualify for
recognition in those statements.
(ii) Cross reference shall be given to each aspect of
balance sheet and statement of profit and loss in regards to
any related information that is there in notes to account.
while preparation of financial statements is taking place
including the notes to accounts, a balance needs to be
struck between excessive detail that may not accept user of
financial statements and necessary information that is
resulted out of too much aggressive aspects.
(4)    (i) Depending upon the turnover of the company, the
figures appearing in the Financial Statements maybe
rounded off as given below:—

Turnover Rounding off

(a) less than the To the nearest

10
 amount of one hundreds,
crore thousands,
lakhsormillions,
or decimals
thereof

(b) one hundred To the nearest

crore rupees or lakhs, millions or
more crores, or
decimals thereof.

(ii) A unit of measurement must be used uniformly once

used in tabulating financial statements. (5)    Apart from
the financial statement of the first nature it shall (after its
incorporation) the corresponding amounts (comparatives)
for the immediately preceding reporting period for all
items shown in the Financial Statements including notes
shall also be given.
(6)    For the purpose of this Schedule, the terms used
herein shall be as per the applicable

Accou Minimum requirements are laid down in this schedule in

nting regards to the face of balance sheet and profit and loss
Standa statement ( after this referred to as financial statements for
rds. this schedule) and Notes. line items sub line items and
subtotal shall be given in addition to the substitution on the
face of Financial statement and relevance needs to be there
in understanding financial position of a company or
performance or catering to the needs of industrial sector-
specific disclosure requirement for when required for
complying with the ICA amendments or Standards of
Accounting.

FORMAT OF FINAL ACCOUNTS

Pro forma of Trading Account
In the Books of X and Y
Trading Account for the year ended 31st March, ______________
Particulars Rs Rs Particulars Rs Rs.

11
 . . .

To Opening Stock X x By Sales x X

(-) Sales Return

(-) Return Inwards

To Purchases x x By Goods destroyed by Fire x X

(-) Purchase Return.

(-) Return Outwards

To Wages By Goods Distributed as Free Samples

To Productive Wages By Goods withdrawn by partners for

personal use

To Manufacturing Wages By Goods lost by theft

To Wages and Salaries By Closing Stock

To Works Manager's Salary By Gross Profit C/d

To Carriage

To Carriage Inwards

To Carriage on Purchases

To Factory Expenses

To Factory Insurance

To Factory Rent

To Factory Lighting

To Factory Salary

To Import Duty

To Octroi and Cartage

To Customs charges

To Freight

To dock dues charges

To Gas, Coal, Water, Fuel and

Power

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 To Motive Power

To Royalty

To Royalty on Purchases

To Manufacturing Expenses

To Trade Expenses

To Heating and Lighting

To Gross Profit C/d

Pro forma of Profit and Loss Account

Particulars Rs Rs. Particulars Rs Rs.

. .

To Gross Loss b/d x X By Gross Profit b/d X x

To Salaries X x By Commission Received x x

To Salaries and Wages By Commission Earned

To Unproductive Wages By Discount Received

To Non – Productive Wages By Discount Earned

To Office Expenses By Interest Received

To Rent By Interest Earned

To Office Rent By Income from other sources

To Rent , Rates & Taxes By Bad debts recovered

To Lighting By Provisions for Discount on

Creditors

To Office Lighting By Dividends Received

To Electricity Charges By Miscellaneous Incomes

To Insurance By Sundry Incomes

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To Postage and Telegrams By Rent Received

To Loss on Sale of Assets By Profit on Sale of Assets

To Loss on Sale of Investments By Profit on Sale of Investments

To Interest on Partners' Capitals By Interest on Partners' Drawings

To Telephone and Fax Charges By O.R.D.D.

To Bad Debts (-) Bad Debts

(+) F.B.D. (-) F.B.D.

(+) N.R.D.D. (-) N.R.D.D.

(-) O.R.D.D.

To Courier Charges By Net Loss C/d

To Printing & Stationery

To Legal Expenses

To Trade Expenses

To Sales Tax

To Repairs and Renewals

To Audit Fees

To Depreciation

To Sundry Expenses

To General Expenses

To Miscellaneous Expenses

To Provident Fund Contribution

To Travelling Expenses

To Conveyance Expenses

To Commission & Allowances

To Brokerage

To Carriage Outwards

To Carriage on Sales

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 To Storage Charges

To Warehouse Charges

To Godown Charges

To Packing Expenses

To Packing Charges

To Advertisement Expenses

To Delivery Van Charges

to Export Duties

To Bank Charges

To Entertainment Charges

To Interest Paid

To Discount allowed on Debtors

To Discount on Bills

To Provisions for Discount on

Debtors

To Net Loss by Fire

To Net  Loss by Theft

To Donations

To Charity

To Professional Charges

To General Reserve (Transfer)

To Interest on loans

To Net Profit C/d

Sample format of Balance sheet

Liabilities Rs Rs. Assets Rs Rs.

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 . .

Partners' Capital A/c X X Goodwill x X

Partners' Current A/c X x Patents & Patterns X X

General Reserve X X Trade Marks x X

Reserve Fund X x Copyrights X X

Provident Fund X X Freehold Property x X

(+) Interest on Provident fund

Investments (if any)

Loan from Partners X x Leasehold Property X X

Loan from Bank X X Premises x X

Bank Overdraft X x Land & Building X X

Sundry Creditors X x Plant & Machinery x X

Bills Payable X x Delivery Van X X

Outstanding Expenses X X Motor Vehicle x X

Income received in Advance X x Furniture X X

Fixtures x X

Office Equipments X X

Loose Tools x X

Investments X X

Provident Fund x X
Investments

Interest Accrued on X X
Investments

Loans (given) x X

Sundry Debtors X X

Stock of Stationery x X

Stock of Postal Stamps X X

Closing Stock x X

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 Bills Receivable x X

Insurance Claim X X
Receivable

Cash in Hand x X

Cash at Bank x X

Prepaid expenses X X

Incomes Receivables x X

Partners' Current Account X X

CONCLUSION AND SUGGESTION

The importance of final accounts is highly appreciated and has become an ardent need of
modern era in keeping the books of accounts together which further helps in determining the
position and profitability of a company through the preceding financial year. The books of
record comprising trading account and profit and loss account at last followed by balance
sheet which is only prepared at last keeping in mind that all the transaction done during the
course of business and which in addition is related to the business have already been
recorded in the preceding accounts.

The government in relation to that has taken a step forward and has made a rule of law under
Companies Act, 2013 in addition to the companies act, 1956 which already had similar
provisions and added further requirements which has to be compulsorily fulfilled by the
Companies in making of the final Accounts.

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 Final Accounts has thus become a mode of immense importance in conducting business
since it shows financial stability at one hand and on the other has become a mode of
compliance under the machinery established and specified by the law.

BIBLIOGRAPHY
Books
1. Francioni F. &Scovazzi, T. (eds), International need for Accounting, London, 1991.
2. Hofmann, R., “Results of accounting”.
3. M.T.”Accuracy in Preparation of accounts ”,Philadelphia 1992.
4. Leuz and Verecchia (2001) to study sample of firms listed in Germany's Neuer Market.
5. Ammer, Holland, Smith and Warnock (2004), in an analysis of final accounts,
6. John Ammer, N. Clinton and G. Nini (2005) studied publicly traded financial firms of
European Union which were listed on US stock exchanges.
Articles
1. Garvey, J.I., “Towards a reformulation of fundamentals of accounting”, 26 Harvard. (1985).
2. Hathaway, J.C., “Priciples of Accounting”, 4 Journal of Accountancy (1991).
3. Janis, M.W., “Importance of books of Accounts” 17 Cornell International Law Journal (198
4).

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4. Jemmings, R.Y., “Some International application of final accounts”, 20 BYBIL (1939).
5. Lee, L.T., The Right of investors, 80 AJIL (1986).
6. Stopford, M. “ accuracy behind preparation of final accounts,” 33 Virg. JIL (1993).

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