If you are well perfect in accounting your house and business expenditures then you are perfect in everything , else you are losing everything . In daily life you have to manage a number of daily household expenses like daily vegetables , grocery, electricity bills, water bills , LPG bills , clothes etc and in your business also you have to bear a number of daily expense like stationary , electricity bill payments , transport charges , daily maintenance charges , employee refreshment payments etc . So to keep track of all your daily expenses is very necessary because all these expenses in total sum up to a big expense amount which are usually ignored by an individual . Same in the case of business , if theses expenses are ignores then figuring out the actual profit is useless because without all basic expenses with the procurement charges , transportation charges , direct expenses , indirect expenses no actual profit can be calculated .
Some statements are necessary to produce also , like for a business entity like Partnership , a partnership deed is to be formed to legally constitute a partnership deed as per Partnership Act , 1932 , where all partners have to follow guidelines of the partnership deed and it is legally binding the partners . They also have to produce financial statements to show profitability and revenue of business . In an individual case also some people think that it is not necessary to prepare financial statements if a proprietor is initiating a business or having income from different sources , but it is important for an individual also to keep track of all his payments and expenses. In this post , you will get to know what all financial statements you should prepare every year to keep record of all your finance.
Financial Statements Preparation
To prepare financial statements you should always consult a Chartered Accountant or a financial expert if you don’t have basic knowledge of accounting and book keeping . If you are running a business , then you should keep a record of all transactions , which are either related to purchase , sales , taxes , salaries , basic expenses etc .With financial statements you keep a track record of all your business transactions and you also provide an overview of your business operations to the taxation authorities . Financial statements preparation is needed to evaluate accurate profitability and financial stability of business and the individual .
If you don’t have basic knowledge of accounting , then in this post you will learn also what procedure you need to follow to prepare your financial statements . For instance , you want to prepare a trading and profit and loss account then you need values of your purchases , sales , closing stock , direct and indirect expenses , indirect incomes etc , and you will be able finally measure your profitability but to prepare a capital account and a balance sheet is a different thing .
Balance Sheet and Capital Account
In a balance sheet , you get to show your financial assets and your liabilities to project your actual financial position to both to yourself and the taxation authorities . Preparation of Capital account is necessary because sometimes , you want to apply for a loan and every financial institution needs a bureau of your assets and your liabilities towards the general public . To prepare a Capital account then you need the following values on the credit side of the Capital account :
- Income from Business
- Income from Bank Savings and FD Interest
- Income from Debt or Credit Mutual Funds
- Income from Interest from any other institution
- Gift if received from any family member or friend
- Income from all other sources .
On the debit side , the Capital account should include values of :
- Drawings
- Loan or LIC Payments
- Gift to a family member or some friend
- TDS Deducted by any institution or any bank .
In a balance sheet , you need to accurately balance your statement with all statements and values . Your asset side should include All assets , your bank balances , closing stock , debtors , cash balance , TDS Value receivable , which means all receivable things to be added to the balance sheet on the asset side and on the credit side , you should include all liabilities , all creditor payments etc .
So , with all above values you would be able to prepare your financial statements for small business .
Income Tax View
If you consider preparation of financial statements for personal observation of profitability and financial position then you shall be able to better project it through financial statements and with the same you will also be able to secure a loan for yourself anytime you need without much formalities , the second things is that, once you have prepared your financial statements you have good proof of all your sources of income and budgeted assets and liabilities towards the taxation authorities , which helps you to lower down your financial burden and reporting burden , because preparation of Income tax return would not always work accurately like every time on the end date , with the above prepared financials you will be able to present your IT return to the department as soon as possible .
From Income tax view , you should always keep a record of all your financial statements and maintain a file of it for annual filing so that no government employee or income tax employee would able to question you .
Hope , this post helped you manage your personal finance and keep track of your finance . If you have any queries related to personal business accounting or preparing financial statements , then you can place your feedback comments down in the comment section .