(March Ending Special Part 1)
Take first “feet”, Prepare Comparative “Balance Sheet”
Arjuna (fictional character): O Krishna, current Financial year is on verge of ending in the month of March. Government departments due to march ending and upcoming Election Code of Conduct are busy in updating financial records. What preparation should a tax payer consider for Financial year ending ? which will help for drafting proper profit and loss account.
Krishna (fictional character): Profit and Loss account and Balance Sheet both are very important statements, as all business activities reflect through them, and on which lots of business decisions takes place. Decisions like declaration of Dividend on shares and their prices, Sanction of Bank Loan, Financial viability in tenders, Computing liability like Income tax, Sales tax, VAT, Excise Duty, etc. are dependent. Inspite of the fact that Profit and Loss account and Balance Sheet need to be prepared taking 31st March as closing date but due to carelessness and negligence frequently many mistakes and delay in preparation of Balance Sheet occurs, which leads to difficulties to be faced by Businessman, Accountant and Auditors. It would be wise practice for a businessman to make a planned attempt for preparing Projected and Comparative Balance Sheet and Profit and Loss account before 31st of March every year, which will not only going to benefit him but also will help in taking business decisions.
Arjuna: What a wise businessman should consider while preparing comparative Balance Sheet and Profit and Loss account?
Krishna: Listen Arjuna! a wise businessmen have to keep in mind following aspects and follow them:
1. Projected and Comparative Balance Sheet and Profit and loss account means single report containing previous year figures along with current year tentative figures.
2. By preparing that expenses, incomes, capital and assets of both the years will come in adjacent columns and in line with accurate projected Profit and Loss account and Balance Sheet can be prepared for the current year thereafter.
3. In practical and real sense, many businessman do this activity after the completion of the financial year, but if all the activities required for preparing projected profit and loss account and balance sheet did before closing then, it will help to take sound business decisions well before 31st March and also recording of such decisions in books before closing and computing tax liabilities .
4. While preparing comparative Profit and Loss account and Balance Sheet Businessman should review and verify all invoices of purchases, sales, expenses, etc. with the books of accounts for its correctness, calculate and verify closing stock, depreciation, rent, salary and interest to partners and related transactions which are predefined. By considering details of all the receipts and payments, profit and loss account should be prepared. Financial Ratios like Gross profit, net profit, etc. should be compared. By comparing previous year expenses with current year sound business decisions can be made before 31st March.
5. While preparing yearly Balance Sheet, proper reconciliation of Capital Account, Loans and Advances, Sundry Debtors and Creditors, etc are to be made along with balance conformation from parties. The bills related to all the assets are to be considered. Balances of account receivables, bank accounts and cash in hand etc, should be properly considered while preparing Balance Sheet. The closing balances of previous year are correctly taken or not should be checked and in case of computerized accounting, data files of previous year should be checked once.
6. The above comparative Balance Sheet as well as Profit and loss Account should be verified and confirmed by Auditor or Tax Consultant, this will help in accurately determining the amount of Advance tax, Service Tax, Excise Duty, VAT, L.B.T, Dividend, Profit and Loss before 31st March, and decisions would be preplanned as well as it would be based on appropriate calculations. Keeping aside the above mentioned major things, the businessman should also consider other things depending upon the nature of business. He should get habituated of preparing projected or comparative Balance sheet.
Arjuna: How should one prepare his own Balance sheet of life?
Krishna: Waa Arjuna, what a wise question you have asked. Humans life’s age increases with time, hence on beginning of each year or on ones birthday, everyone should evaluate his own good as well as bad deeds. In the balance sheet of life one should take care and should do good deeds which will creates maximum profits (Happiness). Keeping the misconceptions about others is liability and good thoughts are asset. Pure heart is fixed deposit, achievements and success is capital, knowledge is investment, and love is dividend or profit. Bad thoughts or behavior is loss. Time runs away in life hence, do the good deeds always otherwise at the end there will be nothing in Balance sheet of Life. The balance sheet of life should be balanced and at the end of each day one should think whether he had tallied or not. Because when money is earned through bad means, there is lack of sound and relax sleep at night, it’s a loss and if no money is earned even by good means within a day but there is a sound and calm sleep, it means he has earned for the day. Further physical exercise routine will earn healthy body, which is more beneficial than earning excess money in life.