A balance sheet is a snapshot of a business's financial position on a single date, setting out what the company owns, what it owes, and what belongs to its owners. In India, every company must prepare one in the format laid down by Schedule III to the Companies Act, 2013, and present it as part of the financial statements defined under Section 2(40), alongside the profit and loss statement.
The accounting equation
Every balance sheet balances because it rests on one identity: Assets = Liabilities + Equity. Whatever a company controls has been funded either by outsiders (liabilities) or by its owners (equity), so the two sides must always agree. If they do not, there is an error in the books. This is why the statement is called a "balance" sheet.
Structure under Schedule III
Schedule III prescribes a vertical format with a clear split between current and non-current items. Division I applies to companies following Accounting Standards (AS), while Division II applies to those on Ind AS.
| Head | Typical items |
|---|---|
| Non-current assets | Property, plant and equipment; intangible assets; long-term investments |
| Current assets | Inventory; trade receivables; cash and bank balances; short-term loans |
| Equity | Share capital; reserves and surplus (retained earnings) |
| Non-current liabilities | Long-term borrowings; deferred tax liabilities; long-term provisions |
| Current liabilities | Trade payables; short-term borrowings; provisions; GST and TDS payable |
An item is "current" if it is expected to be settled or realised within twelve months of the reporting date; everything else is non-current.
Why it matters
The balance sheet is one of the three core financial statements, sitting alongside the profit and loss account and the cash flow statement. Lenders, investors and rating agencies read it to judge solvency and liquidity through ratios such as the current ratio (current assets to current liabilities) and the debt-equity ratio. Since the 2021 amendment to Schedule III, companies must disclose several of these ratios in the notes to accounts. Section 129 requires the statement to give a "true and fair" view of the company's affairs.
Filing and audit
- The board approves the financial statements, and a statutory auditor audits them under the Companies Act.
- They are laid before members at the Annual General Meeting.
- The audited balance sheet is filed with the Registrar of Companies (ROC) in Form AOC-4, generally within 30 days of the AGM.
- Figures are usually rounded off (to the nearest hundreds, thousands, lakhs or crores) based on turnover, as permitted by Schedule III.
Common mistakes to avoid
- Misclassifying long-term borrowings as current (or vice versa), which distorts the current ratio.
- Forgetting to carry the year's profit from the P&L into reserves and surplus, leaving the two sides out of balance.
- Netting off assets against liabilities instead of presenting them separately, which Schedule III does not allow.
- Omitting the prior-year comparative column, which the format mandates.
Prepared correctly and on time, the balance sheet is not just a compliance formality: it is the clearest single view of a company's financial health and the foundation for any funding, valuation or credit decision.