August 21, 2024

Financial statements are reports compiled by businesses that detail the company’s financial activities and health. Financial statements are often audited by government agencies and accountants to ensure accuracy and for tax, financing, or investing purposes. The primary financial statements of for-profit businesses include the balance sheet, income statement, statement of cash flow, and statement of changes in equity. Nonprofit entities use a similar set of financial statements, though they have different names and communicate slightly different information. Components of Financial Statements Balance Sheet– A balance sheet depicts the value of economic resources controlled by an enterprise, as well as the liquidity and solvency of an enterprise. This is used to estimate the ability of the enterprise in meeting its financial commitments. Statement of Profit and Loss- Portrays the outcome of the functioning of the organization. Cash Flow Statement– Outlines the way of determination of income, as well as its usage. Notes and Schedules– Provides supplementary information explaining different modules of financial statements. A few examples can be risks and uncertainties affecting an enterprise, accounting policies etc. How Financial Statements Work A business’s financial data is used by internal and external parties to analyze that company’s performance and make predictions about the likely direction of its stock price. One of the most important sources of reliable and audited financial data is the annual report, which contains the firm’s financial statements. The financial statements are used by investors, market analysts, and creditors to evaluate a company’s financial health and earnings potential. The three major financial statement reports are the balance sheet, income statement, and statement of cash flows. Objectives of Financial Statements Financial statements are prepared to provide information that suits the common needs of all users. Users of financial statements could be any of the following: Investors Employees Lenders Suppliers and other trade creditors Customers Government and their agencies Public Accounting Assumptions Going Concern In this case, the financial statements are usually prepared on the assumption that the entity will continue functioning in the foreseeable future, and neither there is an intention, nor a need to materially curtail the scale of operations. Consistency This assumption specifies the use of identical accounting policies for similar accounting transactions in all accounting periods. Such a practice makes way for easier comparison of financial statements. Accounting policies, if in need of a change, can be modified by a statue or accounting standard, given the need for more appropriate financial statements. Accrual Basis of Accounting Termed as the most logical approach in determining profit, accrual basis of accounting is an assumption where transactions are recognized immediately after their occurrence. Accrual basis warrants better matching between revenue and cost. Very importantly, profit/loss on this basis reflects activities of the enterprise during an accounting period, in contrast to the cash flow basis where noting but cash flows are generated. Qualitative Characteristics Qualitative characteristics enhance the usefulness of information provided in a financial statement. The following are the qualitative characteristics that a financial statement must adhere to: Understandability The presentation of financial statements must be lucid and concise, to the extent that a person with reasonable business knowledge can decipher. Too much of information, especially the irrelevant ones make a statement clumsy. However, non-disclosure of vital information must be avoided. Relevance The financial statements must only reveal the information which influences the economic decisions of the users. Information of that kind may assist the user in evaluating past, present and future events, or on the other hand help in confirming or correcting past evaluations. Reliability The information provided must be reliable, and for an information to be reliable, it must be accurate and free of errors, bias etc. The following are the traits of reliability: Transactions and events reported are faithfully represented. Transactions and events are reported based on their substance and economic reality, and not on the basis of legal form. The reporting of transactions and events are neutral i.e. without any prejudice or bias. Prudence exercised in reporting uncertain outcome of transaction or events. Comparability Comparison of statements is one of the most frequently used and most potent tools of financial analysis. The financial statements must permit both inter-firm and intra-firm comparison. True and Fair view Financial statement must always depict a true and fair view of the performance, financial position and cash flows of an enterprise. Application of other qualitative characteristics combined with the usage of proper accounting standards will help in providing a true and fair view, much in concurrence with the common thought that the results of today are based on yesterday’s actions. FAQs What Are the Main Types of Financial Statements? The three main types of financial statements are the balance sheet, the income statement, and the cash flow statement. These three statements together show the assets and liabilities of a business, revenues, and costs, as well as its cash flows from operating, investing, and financing activities. What Are the Benefits of Financial Statements? Financial statements show how a business operates. They provide insight into how a business generates revenues, what those revenues are, what the cost of doing business is, how efficiently it manages its cash, and what its assets and liabilities are. Financial statements show how well or poorly a company is managed.

Advance tax is the amount of income tax that is paid much in advance rather than a lump-sum payment at the year-end. Also known as earn tax, advance tax is to be paid in installments as per the due dates decided by the income tax department. Advance tax is a type of tax payment that is made in instalments based on the projected income for the year rather than paying the entire tax bill at the end of the year. Anyone with an expected tax burden of $10,000 or more for the year is required to pay advance tax. It’s paid in monthly instalments. What is Advance Tax? Advance tax is the income tax that is paid in advance instead of lump sum payment at the end of the financial year. It is the tax that you pay as you earn. These payments have to be made in instalments as per due dates provided by the income tax department.   Advance tax meaning, in simple words, would be paying tax liabilities before the end of a fiscal year, is called an advance tax or pay-as-you-earn scheme. It is payable when the tax liability of an individual exceeds Rs.10000 in a given fiscal year. Notably, such a tax is paid in instalments on due dates and is paid in the same year the income is generated.  It is considered to be favourable for the government as it facilitates a smooth and constant flow of income around the year. In case the estimate of a taxpayer’s income increases or decreases as the instalment progresses, then the payable advance tax amount can be adjusted accordingly.  Who Should Pay Advance Tax? Salaried individuals, freelancers and businesses– If your total tax liability is Rs 10,000 or more in a financial year, you have to pay advance tax. The advance tax applies to all taxpayers, salaried individuals, freelancers, and businesses. Senior citizens– People aged 60 years or more who do not run a business are exempt from paying advance tax. So, only senior citizens (60 years or more) having business income must pay advance tax. Presumptive income for businesses–The taxpayers who have opted for the presumptive taxation scheme under section 44AD have to pay the whole amount of their advance tax in one instalment on or before 15th March. They also have the option to pay all of their tax dues by 31st March. Presumptive income for professionals– Independent professionals such as doctors, lawyers, architects, etc. come under the presumptive scheme under section 44ADA. They have to pay the whole of their advance tax liability in one instalment on or before 15th March. They can also pay the entire amount by 31st March. Who is exempt from paying Advance Tax under the Income Tax Act of 1961? f the person is a one-of-a-kind; Is an Indian resident as defined by the Income Tax Act of 1961; At any point during the year, you are 60 years old or older; Has no revenue that is taxable under the heading “Business or Profession.” What is the significance of advance tax? Advance tax is a type of income tax that is paid in advance for income produced during a given fiscal year. Normally, the tax is due when the income is received. Even yet, under advance tax regulations, the payer must estimate his or her income for the entire year. And the tax is paid at particular intervals depending on this estimate. It is critical that the tax payer assesses his or her income and then calculates the predicted tax on it to see if and how much advance tax is due. Advance Tax Due Dates For FY 2024-25 Due Date Advance Tax Payment Percentage On or before 15th June 15% of advance tax On or before 15th September 45% of advance tax (-) advance tax already paid On or before 15th December 75% of advance tax (-) advance tax already paid On or before 15th March 100% of advance tax (-) advance tax already paid For taxpayers who have opted for Presumptive Taxation Scheme under sections 44AD & 44ADA – Business Income Due Date Advance Tax Payment Percentage  On or before 15th March 100% of advance tax How does it work? 1. Estimated total income calculation? Particular(Estimated) Amount Income under the head “Salaries – Income under the head “Income from House Property”   – Income under the head “Income from Business or Profession – Income under the head “Capital Gains” – Income under the head “Income from Other Sources” – Gross Total Income – Less: Deductions under section 80C to 80U – Net Total Income – 2. Estimate the advance tax on the above-mentioned net total revenue. Particular(Estimated) Amount Tax calculated on Net Total Income at applicable rates – Less: Rebate under section 87A – Balance Tax  – Add: Surcharge (if applicable) – Total tax after surcharge               – Add: Health & Education Cess @ 4%                – Total tax                – Less: Relief under section 89, 90, 90A or 91               – Less: TDS, TCS, MAT, AMT already paid             – Total Advance Tax Liability             –   3. Pay the tax on the due dates indicated for this purpose if the total Advance tax debt determined as above is Rs. 10,000 or more: Taxpayer Types Due dates         By 15th June By 15th Sept By 15th Dec By 15th March Everyone who pays taxes (other than those who opted for Presumptive taxation scheme under Section 44AD or 44ADA) Minimum 15% of Advance Tax Minimum 45% of Advance Tax Minimum 75% of Advance Tax 100% of Advance Tax Taxpayers who chose the Section 44AD or 44ADA Presumptive Taxation Scheme NIL NIL NIL NIL   A corporate taxpayer (i.e., a company) and a taxpayer (other than a company) whose accounts must be audited must pay Advance tax electronically through an authorised bank’s internet banking