Income statement: In the case of sole proprietary and partnership concerns there are no prescribed forms of the income statement and balance sheet. Their preparation is also desirable but not compulsory. However, they are generally prepared. In the case of trading concern, a trading account and in the case of a manufacturing concern, a manufacturing account and a trading account can also be prepared. In such a case, the account heading is mentioned as follows: Manufacturing/trading and profit and loss account.
In the case of joint stock companies’ preparation of the profit and loss account and balance sheet every year is compulsory. There is no prescribed form (except in the case of banking and insurance companies) of the income statement or profit and loss account. The account is titled as “Profit and loss account” The results of manufacturing and trading activities may; however, be shown separately in the account. The profit and loss account is usually prepared in a T shape. In the case of joint stock company, the manufacturing, trading and profit and loss account is prepared in the above format except with three modifications:
I.The heading given is only “Profit and loss account” for taxation in the profit and loss account; II.The net profit is shown after making provisions for taxation in the profit and loss account; III.Figures, for the previous period, if any, have also to be given. Profit and loss appropriation account: In the case of joint stock companies, a profit and loss appropriation account is also prepared. It explains as to how the profit earned during the period has been distributed. Balance sheet: There is no prescribed form of balance sheet for a sole proprietary or a partnership concern. However, the assets and liabilities may be shown in any of the following orders:
II.Permanency Order In case the concern adopts liquidity order, the assets which are more readily convertible into cash are taken into account initially and those which are not so readily convertible are taken into account subsequently. Similarly those liabilities which are payable first are taken into account initially and those payable later on are taken into account subsequently and so on. In the case of permanency order, the reverse order is followed. As per the law applicable to some governments, every balance sheet of a company shall give a true and fair view of the state of affairs of the company as at the end of the financial year. Similarly, every profit and loss account of a company shall give a true and fair view of the profit or loss account of the company for the financial year.