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Accounting · Company Accounts

Company Final Accounts: Balance Sheet and Statement of P&L (Schedule III)

Updated 1 October 2026 · Fact-checked

A company's final accounts are the Statement of Profit and Loss and the Balance Sheet, both prepared in Schedule III format. To solve, adjust the trial balance for closing stock, depreciation, outstanding and prepaid items, then put each item under the correct head, classify it as current or non-current, and check that assets equal equity plus liabilities.

Understand Company Final Accounts: Balance Sheet and Statement of P&L

A company must present its financial statements in the format given in Schedule III of the Companies Act, 2013. Unlike a sole trader, it does not show a separate Trading Account. The Statement of Profit and Loss is one statement, and the Balance Sheet is shown in a fixed vertical format.

The Statement of P&L starts with Revenue from operations and Other income. From the total revenue you deduct expenses under fixed heads: cost of materials consumed, purchases of stock-in-trade, changes in inventories, employee benefit expense, finance costs, depreciation and amortisation, and other expenses. The result is profit before tax. After tax expense you get profit for the period.

The Balance Sheet has two main blocks. Equity and Liabilities has shareholders' funds (share capital, reserves and surplus), non-current liabilities and current liabilities. Assets has non-current assets and current assets. Each head is further split into the sub-heads Schedule III lists, such as long-term borrowings, trade payables, inventories and trade receivables.

The key skill is current vs non-current classification. An asset is current if you expect to realise it, sell it or use it within the normal operating cycle or within 12 months of the reporting date. It is also current if it is cash or a cash equivalent. A liability is current if it is due to be settled within 12 months or within the operating cycle. Everything else is non-current.

Adjustments are the other half of every question. Each adjustment has a double effect: one in the Statement of P&L and one in the Balance Sheet. For example, outstanding salaries increase the expense and also create a current liability. If you record both effects, the Balance Sheet will tally.

Key rules to remember

Balance Sheet equality
Total Assets = Shareholders' funds + Non-current liabilities + Current liabilities
Use this as your final check. If it does not tally, an adjustment has been recorded on one side only.
Changes in inventories
Changes in inventories = Opening stock − Closing stock
A positive result is a decrease in stock and adds to expenses. A negative result is an increase in stock and is shown in brackets, which reduces expenses.
Total revenue
Total revenue = Revenue from operations + Other income
Items like interest received or profit on sale of an asset go under Other income, not Revenue from operations.
Profit before tax
PBT = Total revenue − Total expenses
Total expenses include finance costs and depreciation. Tax is not part of total expenses.
Profit for the period
Profit for the period = PBT − Tax expense
Tax expense means current tax plus deferred tax, where given.
Surplus in the Balance Sheet
Closing surplus = Opening surplus (balance in Statement of P&L) + Profit for the period − Appropriations
Surplus is shown under Reserves and surplus. A loss is deducted. Transfers to reserves are appropriations.
Current / non-current test
Current if realised or settled within 12 months (or the operating cycle); otherwise non-current
Apply it to every asset and liability using the facts in the question, not the name of the item.
Net block of PPE
Net value of asset = Cost − Depreciation charged
In an exam answer, show the net figure under Property, Plant and Equipment, with the working in a note.

How to solve Company Final Accounts: Balance Sheet and Statement of P&L questions

Use the same sequence for any company final accounts question. Do the workings first, then fill the formats.

  1. 1Read all adjustments first and tick each trial balance item it affects. Note whether each adjustment touches the Statement of P&L, the Balance Sheet or both.
  2. 2Classify every trial balance item under a Schedule III head. Write the head next to it: for example, wages as Other expenses, or debentures as Long-term borrowings.
  3. 3Make short workings: closing stock, changes in inventories, depreciation, outstanding and prepaid amounts, and tax. Show them clearly because they earn step marks.
  4. 4Prepare the Statement of Profit and Loss in Schedule III order. Show revenue, other income, each expense head, PBT, tax and profit for the period.
  5. 5Add the profit for the period to the opening surplus and deduct any appropriations. Carry the closing figure to Reserves and surplus.
  6. 6Prepare the Balance Sheet. Fill Equity and Liabilities, then Assets. Classify each item as current or non-current, and put net values for fixed assets.
  7. 7Total both sides and check that they match. If not, look for an adjustment with only one effect, a missed opening surplus, or a missed item in the trial balance.
  8. 8Add notes to accounts or workings where the question asks for them, such as share capital details, PPE and depreciation, or trade payables.

Quickest way: Adjust the trial balance with an adjustment column

When to use it: Use this when the trial balance has many items and 4 to 6 adjustments, which is the usual exam pattern.

  1. Draw a quick table beside the trial balance with columns: Item, Amount, Adjustment, Final figure, Schedule III head.
  2. Enter each adjustment once, next to the item it changes. For a new item like outstanding salaries, add a new line.
  3. Mark every new line as P&L, Balance Sheet or both. This stops one-sided entries.
  4. Total the P&L heads first and find PBT. Then total the Balance Sheet from the final figure column.
  5. Copy figures into the formats in Schedule III order, using the head names exactly as in the schedule.
  6. Use the equality check at the end. A difference equal to one adjustment usually shows the one you missed.

Common mistakes in Company Final Accounts: Balance Sheet and Statement of P&L

  • Preparing a Trading Account and a separate Profit and Loss Account for a company

    Students carry over the sole trader format from earlier chapters.

    Fix: Present a single Statement of Profit and Loss in the vertical Schedule III format, with purchases and changes in inventories shown among the expenses.

  • Showing closing stock on the credit side or ignoring changes in inventories

    Students mix the old Trading Account method with the new format.

    Fix: Compute Opening stock − Closing stock. Show it as an expense if positive and in brackets if negative. Show closing stock as an asset under Inventories.

  • Classifying items by name rather than by due date

    Students memorise that loans are always long-term, or that debentures are always non-current.

    Fix: Check when the item is to be settled or realised. A debenture or loan due within 12 months is current, while one due later is non-current.

  • Recording only one effect of an adjustment

    Students rush and adjust the expense but forget the liability or asset, or the reverse.

    Fix: For every adjustment, write both effects in your adjustment column. Outstanding expense means expense up and current liability. Prepaid expense means expense down and current asset.

  • Forgetting the opening balance of surplus

    The opening balance in the Statement of P&L sits in the trial balance among the credits, and students overlook it.

    Fix: Add the profit for the period to the opening surplus and show the total under Reserves and surplus. If it is a debit balance, deduct it.

  • Showing fixed assets at cost without deducting depreciation

    Students charge depreciation in the P&L but forget to reduce the asset.

    Fix: Show the net value under Property, Plant and Equipment, and give the cost and depreciation in a working or note.

Worked examples

Example 1

Classify each item under the correct Schedule III head in the Balance Sheet of a company: (a) Debentures repayable after 5 years; (b) Bank overdraft; (c) Outstanding salaries; (d) Provision for tax; (e) Goodwill; (f) Prepaid insurance; (g) Securities premium.

Show the solution
  1. (a) Debentures are borrowings due after more than 12 months. Head: Non-current liabilities, Long-term borrowings.
  2. (b) Bank overdraft is repayable on demand. Head: Current liabilities, Short-term borrowings.
  3. (c) Outstanding salaries are an expense due but unpaid, to be settled soon. Head: Current liabilities, Other current liabilities.
  4. (d) Provision for tax is an amount set aside for the current year tax. Head: Current liabilities, Short-term provisions.
  5. (e) Goodwill has no physical form and is used over many years. Head: Non-current assets, Property, Plant and Equipment and Intangible assets, Intangible assets.
  6. (f) Prepaid insurance is a benefit to be received within the next year. Head: Current assets, Other current assets.
  7. (g) Securities premium is a part of owners' funds. Head: Shareholders' funds, Reserves and surplus.

Answer: (a) Long-term borrowings (non-current liability); (b) Short-term borrowings (current liability); (c) Other current liabilities; (d) Short-term provisions; (e) Intangible assets (non-current asset); (f) Other current assets; (g) Reserves and surplus (shareholders' funds).

Example 2

From the following trial balance of Alpha Ltd. as at 31 March 2025, prepare the Statement of Profit and Loss for the year and the Balance Sheet. Debit balances: Purchases ₹6,00,000; Opening stock ₹1,00,000; Wages ₹50,000; Salaries ₹1,20,000; Land and building ₹2,00,000; Plant and machinery ₹6,00,000; Trade receivables ₹1,50,000; Cash at bank ₹1,00,000; Debenture interest paid ₹10,000. Credit balances: Equity share capital ₹5,00,000; General reserve ₹1,00,000; Surplus (opening balance in Statement of P&L) ₹50,000; 10% Debentures (repayable in 2030) ₹2,00,000; Trade payables ₹80,000; Revenue from operations ₹10,00,000. Adjustments: (i) Closing stock ₹1,40,000. (ii) Depreciate plant and machinery at 10%. (iii) Salaries outstanding ₹20,000. (iv) Debenture interest outstanding ₹10,000. (v) Provide for tax ₹30,000.

Show the solution
  1. Check the trial balance: debits total ₹19,30,000 and credits total ₹19,30,000. It tallies.
  2. Changes in inventories = Opening stock ₹1,00,000 − Closing stock ₹1,40,000 = (₹40,000). Stock has increased, so this reduces expenses.
  3. Employee benefit expense = Salaries ₹1,20,000 + Outstanding ₹20,000 = ₹1,40,000.
  4. Finance costs = Interest paid ₹10,000 + Outstanding ₹10,000 = ₹20,000 (10% of ₹2,00,000).
  5. Depreciation = 10% of ₹6,00,000 = ₹60,000. Other expenses = Wages ₹50,000.
  6. Statement of P&L: Revenue from operations ₹10,00,000. Expenses: Purchases of stock-in-trade ₹6,00,000; Changes in inventories (₹40,000); Employee benefit expense ₹1,40,000; Finance costs ₹20,000; Depreciation ₹60,000; Other expenses ₹50,000. Total expenses = ₹8,30,000.
  7. Profit before tax = ₹10,00,000 − ₹8,30,000 = ₹1,70,000. Tax ₹30,000. Profit for the period = ₹1,40,000.
  8. Surplus in Balance Sheet = Opening ₹50,000 + ₹1,40,000 = ₹1,90,000. Reserves and surplus = General reserve ₹1,00,000 + Surplus ₹1,90,000 = ₹2,90,000.
  9. Equity and Liabilities: Shareholders' funds = Share capital ₹5,00,000 + Reserves and surplus ₹2,90,000 = ₹7,90,000. Non-current liabilities: Long-term borrowings ₹2,00,000. Current liabilities: Trade payables ₹80,000; Other current liabilities (₹20,000 + ₹10,000) ₹30,000; Short-term provisions ₹30,000; total ₹1,40,000. Total = ₹11,30,000.
  10. Assets: Non-current: PPE = Land and building ₹2,00,000 + Plant net (₹6,00,000 − ₹60,000) ₹5,40,000 = ₹7,40,000. Current: Inventories ₹1,40,000; Trade receivables ₹1,50,000; Cash and cash equivalents ₹1,00,000; total ₹3,90,000. Total assets = ₹11,30,000. Both sides agree.

Answer: Profit before tax is ₹1,70,000 and profit for the period is ₹1,40,000. The Balance Sheet total is ₹11,30,000 on both sides.

Exam tips

  • Learn the Schedule III heads in order and write them in the same order every time. Examiners give marks for correct heads and sub-heads.
  • Always show workings (closing stock, depreciation, outstanding items, surplus) separately and refer to them in the answer. A wrong final figure can still earn step marks.
  • Read the question for the format asked. If only the Balance Sheet is asked, do not waste time on a full P&L, but still compute the profit you need.
  • Use the date and repayment terms in the question to decide current or non-current. Do not guess from the name of the item.
  • Leave 5 minutes to total both sides of the Balance Sheet and fix any difference.

Practice questions from Company Accounts

Company Final Accounts: Balance Sheet and Statement of P&L: frequently asked questions

Is a Trading Account needed in company final accounts?

No. A company prepares one Statement of Profit and Loss in Schedule III format. Purchases, changes in inventories and other items appear as expense heads in that statement. You do not draw a separate Trading Account.

How do I decide whether an item is current or non-current?

Ask when it will be realised or settled. If within 12 months of the reporting date or the normal operating cycle, it is current. Cash and cash equivalents are current. Everything else is non-current.

Where do I show surplus (balance in Statement of P&L)?

Show it under Shareholders' funds as part of Reserves and surplus. Add the profit for the period to the opening balance and deduct any appropriations. If the result is a loss, show it as a negative figure.

Do I have to learn the whole Schedule III format by heart?

Yes, learn the main heads and the common sub-heads, because the Balance Sheet and Statement of P&L are filled in this format. Practise writing it from memory. After a few problems it becomes automatic.