How to Prepare for Financial Statements
and Tax Returns
Every business whether big or small, manufacturing or trading, retail or wholesale is required to prepare its annual financial statements, and file tax returns. These financial records are an expression of all the activities undertaken by an entity during a financial year; income and expenses pertaining to it and the current state of the business. Financial statements include profit & loss statement, income statements, balance sheet, notes and schedules and cash flow statements.
Usually prepared by an accountant regulated by corporate and allied law, financial statements can easily be prepared using various software and spreadsheets after all the adjusting entries and basic accounting is done.
Preparing a Balance Sheet
Also called as a statement of financial position, a balance sheet is a snapshot of the business at a given date in time listing your assets, your liabilities and the difference between the two i.e. owner's net worth. Prepared after all adjusting entries have been made in the journal, all journal entries have been posted to the general ledger, the general ledger accounts have been footed to arrive at the period end totals, and an adjusted trial balance is prepared from the general ledger amounts.
Preparing an Income Statement
Commonly known as the profit and loss statement, it keeps a record of all the income & expenses earned and incurred by an enterprise respectively. It is prepared before finalization of the balance sheet and the net profit is the difference between your income and expenses.
Records required for preparation of such statements —
• Gather all receipts and bills, details and vouchers of business expenses such as travel expenses, marketing & advertising expenses, rent, office supplies, etc
• Tally records
• Payroll information
• Details of asset additions or disposals during the year
• Details of assessment notices if any, last year's tax return, deductions and exemptions availed during the year
While all the financial statements are ready and audited, one needs to now prepare for filing of income tax returns. Filing of tax return is not as tedious as it appears if all the prep work is timely scheduled and not procrastinated for the end moment. Filing tax returns requires some set of documents which can differ from individual to individual, professional to professional and for various corporate entities but are more or less similar.
Some basic documents that one needs to keep handy are –
• E-filing income tax portal log-in details
• Digital Signature Certificate
• PAN and Aadhaar number Form 16 (for salaried employees)
• Interest & TDS certificates
• Form 26AS
• Documents required for claiming expenses and deductions such as details of contribution to Provident Fund, children’s school tuition fees, amount of premium paid for life insurance & health policies, and other investments made for claiming section 80C deduction which is eligible under the finance act.