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Financial Statements
Balance sheet, profit and loss and cash flow — prepared to schedule III, and readable by a bank.
What the three statements tell you
The profit and loss account shows performance over a period. The balance sheet shows the position on one date. The cash flow statement reconciles the two and explains why a profitable business can still be short of money. A lender reads all three, in that order, and then reads the notes.
Format and disclosure #
Companies present accounts in the format prescribed by Schedule III of the Companies Act, with notes covering accounting policies, related-party transactions, contingent liabilities and the ageing of trade receivables and payables. LLPs and firms have lighter requirements, but a bank will still expect the same substance.
The figures that get questioned #
Closing stock valuation, directors' remuneration, loans from related parties, capital work in progress that never moves, and receivables older than a year. If any of those are material, the note explaining them should be written before someone asks.
What you will need
- Trial balance for the year
- Bank confirmations and reconciliations
- Stock statement with the valuation basis
- Fixed asset register with additions and disposals
- Loan agreements and interest computations
- Confirmations from major debtors and creditors
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