The term “financial statements” refers to a

presentation of financial data, including accompa-

nying notes, derived from accounting records and
intended to communicate an entity’s economic
resources or obligations at a point in time or the
changes for a period of time in conformity with an
identifiable framework, such as generally
accepted accounting principles (GAAP)
Financial Statement
The term “financial statements” refers to a
presentation of financial data, including accompa-
nying notes, derived from accounting records and
intended to communicate an entity’s economic
resources or obligations at a point in time or the
changes for a period of time in conformity with an
identifiable framework, such as generally
accepted accounting principles (GAAP)
The term “financial statements” refers to a presentation of financial data, including accompanying notes, derived
from accounting records and intended to communicate an entity’s economic resources or obligations at a point in
time or the changes for a period of time in conformity with an identifiable framework, such as generally accepted
accounting principles (GAAP)
The term “financial statements” refers to a
presentation of financial data, including accompa-
nying notes, derived from accounting records and
intended to communicate an entity’s economic
resources or obligations at a point in time or the
changes for a period of time in conformity with an
identifiable framework, such as generally
accepted accounting principles (GAAP)
The term “financial statements” refers to a
presentation of financial data, including accompa-
nying notes, derived from accounting records and
intended to communicate an entity’s economic
resources or obligations at a point in time or the
changes for a period of time in conformity with an
identifiable framework, such as generally
accepted accounting principles (GAAP)

Audit of Financial Statement

A financial statement audit is the examination of an entity's financial statements and accompanying disclosures by
an independent auditor. The result of this examination is a report by the auditor, attesting to the fairness of
presentation of the financial statements and related disclosures. The auditor's report must accompany the financial
statements when they are issued to the intended recipients.

The purpose of a financial statement audit is to add credibility to the reported financial position and performance of
a business. The Securities and Exchange Commission requires that all entities that are publicly held must file annual
reports with it that are audited. Similarly, lenders typically require an audit of the financial statements of any entity
to which they lend funds. Suppliers may also require audited financial statements before they will be willing to
extend trade credit (though usually only when the amount of requested credit is substantial).

Audits have become increasingly common as the complexity of the two primary accounting frameworks, Generally
Accepted Accounting Principles and International Financial Reporting Standards, have increased, and because there
have been an ongoing series of disclosures of fraudulent reporting by major companies.

The primary stages of an audit are:

1. Planning and risk assessment. Involves gaining an understanding of the business and the business environment in
which it operates, and using this information to assess whether there may be risks that could impact the financial
statements.

2. Internal controls testing. Involves the assessment of the effectiveness of an entity's suite of controls, concentrating
on such areas as proper authorization, the safeguarding of assets, and the segregation of duties. This can involve an
array of tests conducted on a sampling of transactions to determine the degree of control effectiveness. A high level
of effectiveness allows the auditors to scale back some of their later audit procedures. If the controls are ineffective
(i.e., there is a high risk of material misstatement), then the auditors must use other procedures to examine the
financial statements. There are a variety of risk assessment questionnaires available that can assist with internal
controls testing.

3. Substantive procedures. Involves a broad array of procedures, of which a small sampling are:

 Analysis. Conduct a ratio comparison with historical, forecasted, and industry results to spot anomalies.
 Cash. Review bank reconciliations, count on-hand cash, confirm restrictions on bank balances, issue bank
confirmations.
 Marketable securities. Confirm securities, review subsequent transactions, verify market value.
 Accounts receivable. Confirm account balances, investigate subsequent collections, test year-end sales and
cutoff procedures.
 Inventory. Observe the physical inventory count, obtain confirmation of inventories held at other locations,
test shipping and receiving cutoff procedures, examine paid supplier invoices, test the computation of
allocated overhead, review current production costs, trace compiled inventory costs to the general ledger.
 Fixed assets. Observe assets, review purchase and disposal authorizations, review lease documents,
examine appraisal reports, recalculate depreciation and amortization.
 Accounts payable. Confirm accounts, test year-end cutoff.
 Accrued expenses. Examine subsequent payments, compare balances to prior years, recompute accruals.
 Debt. Confirm with lenders, review lease agreements, review references in board of directors minutes.
 Revenue. Examine documents supporting a selection of sales, review subsequent transactions, recalculate
percentage of completion computations, review the history of sales returns and allowances.
 Expenses. Examine documents supporting a selection of expenses, review subsequent transactions, confirm
unusual items with suppliers.

An audit is the most expensive of all the types of examination of financial statements. The least expensive is a
compilation, followed by a review. Due to its cost, many companies attempt to downgrade to a review or
compilation, though this is only an option if it is acceptable to the report recipients. Publicly held entities must have
their quarterly financial statements reviewed, in addition to the annual audit.
 Profit & Loss Account

The Profit & Loss A/c is a periodic statement, which shows the net result of business operations for a specified
period. All the expenses incurred and incomes earned during the reporting period are recorded here. The Profit
and Loss Account in Tally.ERP 9 displays information based on the default primary groups. It is updated with
every transaction/voucher that is entered and saved.

View Profit & Loss Account

You can view the Profit & Loss account details in Tally.ERP 9 for a specified period. You can view this report
in browser .
Note : By default, the Profit & Loss A/c report will be generated as on the date of the last voucher entry. You can change
the date to view the report for the required period.

1. Go to Gateway of Tally > Display > Profit & Loss A/c .

2. Click F1 : Detailed to view the Profit & Loss Account in detailed format. The Profit & Loss
Account appears as shown below:

The Profit & Loss Account is generated and updated immediately from the date of opening of books till
the date of last entry.

3. Press F2: Period to change the period as required.

The Profit & Loss A/c is in horizontal form, by default. You can view the report in vertical format by enabling
the option Show Vertical Profit & Loss? by clicking F12: Configure . You can view additional information or
toggle to another report using the options available in the button bar.

4. Click S : Schedule VI in the Schedule VI Profit & Loss A/c, as shown below:

Configure Profit & Loss Account

You can configure the Profit & Loss account details to view it in the required format.

● F12: Configure : Press F12 and set the option Show Vertical Profit & Loss to Yes to display Profit &
Loss Account in the v ertical form, as shown below:

The vertical form shows the Trading Account and the Income Statements separately.

● Show Percentages : Set this to Yes to express each line as a percentage of sales accounts , that is, if you
consider sales accounts to be 100%, the rest of the lines would be a percentage of sales accounts.

● Show with Gross Profit : Set this to Yes to split the Profit & Loss Statement to show trading profit,
which considers only the Cost of Sales and Direct Expenses . Indirect Expenses are deducted from
the Gross Profit to show the Nett Profit .
 Note: This field is applicable only to horizontal form of Profit and Loss Account .

● Columnar Profit & Loss Account : Select a column to display the Profit & Loss Account in a
different currency . Click C : New C olumn on the button bar or press Alt+C , to change only
the currency, and give the Closing Exchange Rate . The Profit & Loss Account figures are converted at
this rate, and are displayed as shown below:

Select a column to display the Profit & Loss Account with a different s tock valuation method.

● Stock Valuation : Click C : New C olumn on the button bar or the keys Alt+C and change only the
stock valuation method to LIFO Annual .

Schedule VI Profit and Loss A/c (India)

The statement of Profit & Loss A/c as per the Revised Schedule VI is available in Tally.ERP 9.

View Schedule VI Profit and Loss A/c

Go to Gateway of Tally > Audit & Compliance > Financial Statements > Profit & Loss A/c .

About 0.0.0.Schedule VI -Statement of Profit & Loss

 ● The report displays the Schedule VI Income and Expense Heads with the respective balances. Default
Tally Accounting Groups are automatically linked to their respective Schedule VI Income/Expense
Heads. The Ledgers that are classified under these Accounting Groups to get linked to the Schedule VI
Heads. This is a broad classification provided by Tally.ERP 9. Users can reclassify the
Groups/Ledgers under other Schedule VI Income/Expense Heads as required.

● Schedule VI Income/Expense Heads consisting of Groups/Ledgers that have not been categorised by the
user, will be displayed as Ungrouped and in red, to bring the same to attention.

● Press Enter on the required Schedule-VI head/sub-head to view the respective Note Summary report.

● Total value of Ledgers grouped under Exceptional Items from Schedule VI Configuration screen will
be captured for the same Head on the face of the Statement of Profit and Loss.

● Total value of Ledgers grouped under Extraordinary Items from Schedule VI Configuration screen

will be captured for the same Head on the face of the Statement of Profit and Loss.

● Where F11 : Statutory Features are enabled and used, Tally.ERP 9 will automatically categorise VAT
and CST enabled Sales Ledgers under Sale of Products, and Service Tax enabled Ledgers under Sale
of Services.

Exceptions in Schedule-VI Profit & Loss A/c

In the Schedule-VI Profit & Loss A/c all the possible exceptions will be displayed in red for users’ attention.

Previous Year Ungrouped : Any Ledger/Group present only in Previous Year that remain unclassified under
Schedule VI Groups, will be shown under this Exception.

Difference in Bifurcation : This exception occurs where Ledgers have been mapped to Schedule VI Heads
using the Bifurcate Balance option. If their opening balances have been modified, or transactions have been
passed using these ledgers, this exception occurs, and is displayed as Difference in Bifurcated Balance

Negative Balance of Stock : This exception indicates that the inventory of a business has negative balance.

Button options in the Schedule VI Profit and Loss A/c

● F1 : Detailed : Click F1 : Detailed or press Alt+F1 to view the Profit & Loss A/c in detailed form.
 ● F2: Period : Click F2 : Period or F2 to change the selected period for the Audit Year (Current Year). If
two separate companies are loaded or if the multiple years transactions are in the same data then the
Period for the Previous Year is also changed accordingly.

● F3: Hide Prev. Year : Press F3 or click on F3: Hide Prev. Year to display the Previous Year column
while displaying report. This will be highlighted only when the company has more than one year data.

● Ctrl+O: Copy Classify : Click Ctrl+O : Copy Classify or press Ctrl+O to copy the configurations of

the Schedule-VI Balance sheet from another Company on Tally.ERP 9.

● Ctrl+F3: Compare Cmp : Click Ctrl+F3 : Compare Cmp or press Ctrl+F3 to load the Company

having previous year's data .

Note: If the data for both the years is there in the same Company, then it is not required to load the other
Company.
For the Company with two years data, system will check for the Vouchers passed on any Day in the month
March to determine the Audit Year.
The Schedule-VI Profit & Loss A/c with two years' data is as shown:
● F8: Note. No. : Click F8 : Note No. or press F8 for Note Number Configuration .

● F9: Master Config. : Click F9 : Master Config. Or press Alt+F9 to view the Schedule VI Master

Configuration .

● A : Additional Info. : Place the cursor on a Schedule VI Head and click on A : Additional Info. or
press Alt+A to go to the respective Additional Details report.

● N : Show Negative Stock : Press Alt+N to view Stock Items having negative balances.

● F10: Audit Reports : Click on F10 : Audit Reports or press Alt+F10 to navigate to the other Audit
Reports within Statutory Audit .

● F12: Configure : Click F12 : Configure or press F12 to change the default display for the Schedule-VI
Profit & Loss A/c report.
 Scale Factor for Values : Select the required Scale Factor from Crores, Hundreds, Lakhs, Millions,
Ten Lakhs, ten Millions, Ten Thousands, Thousands or Default for displaying the balances in the
Schedule-VI Profit and Loss A/c

BALANCE SHEET: A balance sheet is a financial statement that reports a company's

financial position. This report shows the balance between the assets and liabilities of a firm.
The balance sheet follows the fundamental accounting equation: Assets = Liabilities +
Owner's Equity. Configure Balance Sheet

System Configuration : You can configure the options in balance sheet for method of
● 

showing balance sheet, format, and other additional details. Go to Gateway of

Tally > F12: Configuration > General. The System Configuration screen appears
as shown below:

Set Use Accounting terminology of to India/SAARC or International under the Country Details .

If you have activated India/SAARC , the Balance Sheet will display Sources of
Funds, and Application of Funds . And if you have activated International, the Balance Sheet will
display Assets and Liabilities

● Show Vertical Balance Sheet : By default, the Balance Sheet screen is displayed in the horizontal
form. However, you can configure the Balance Sheet to appear in vertical form, by pressing F12:
Configure, and setting the option Show Vertical Balance Sheet to Yes .
 The Balance Sheet in vertical form appears as shown below:

● Profit or Loss, both as Liability : Set this to No , to move the Profit & Loss Account to
the Assets side of the Balance Sheet .

Note: The Profit or Loss, both as Liability option is available in horizontal form.

● Show Percentages : Set this option to Yes in the balance sheet configuration screen. Press Alt+F1 to
view the detailed Balance Sheet . In Detailed mode, the Balance Sheet appears as shown below:
 Each line is expressed as a percentage of the total amount of the Balance Sheet .

● Show Working Capital figures : Using this option, you can set Balance Sheet to show working capital
values. Working capital is the difference between current assets and current liabilities. Set Show
Working Capital figures to Yes , to display current assets less current liabilities.

Select F1 : Detailed from the button bar. The Balance Sheet with working capital figures appears as
shown below:
● Method of Showing the Balance Sheet : Select the options as Liabilities/Assets or Assets/Liabilities.

● Columnar Balance Sheets : Select a different date to compare two balance sheets. Press New
Column on the button bar or Alt+C and change the period.

The following is a comparison between Balance Sheet dated 1st July, and 15th July.
Press N ew Column on the button bar or ALT+C and change only the currency to display the Balance
Sheet with figures in a different currency.

The following is a comparison of the Balance Sheet dated 15th July, in different currencies:

● Show Quarterly Balance Sheet : Press Auto-column on the button bar or use the key Alt+N .
Select Quarterly from the list of periods.

The Balance Sheet with column details repeated Quarterly will appear as shown below:

Set Closing Stock Manually in the Balance Sheet

In Tally.ERP 9, the value of closing stock displayed in the Balance Sheet is based on the costing method
defined for each stock item in the stock item master. The general principle of accounting is to value the stock at
purchase cost or market value, whichever is lower. The value of closing stock can be entered manually.

For example, consider that the market value of stock on 31-12-2008 is Rs.25,000. To show this amount as the
closing stock value:

● Set the option Integrate accounts and inventory to No in F11: Features (F1:Accounting Features) .

● Create a ledger s tock (under Stock-in-Hand).

● In Closing Balance of Balance Sheet , specify date as 31/12/08 and value as 40,000 . The Balance

Sheet appears as shown below:
 When the balances are carried forward to the next year, the opening value of stock will be 25,000, if
the option Integrate account and inventory option is set to No in F11: Features (F1:Accounting
Features) .
If this option is set to No , the manual entry will not be considered, and the value will be calculated
automatically based on inventory values.

Display Balance Sheet with Different Stock Valuation Methods

Tally.ERP 9 provides different valuation methods for different stock items which means you can use different
valuation methods like (FIFO, LIFO, Avg Cost, Avg Price, Std. Cost, Std. Price, and others) for the inventories
in the Balance Sheet.

The various s tock valuation methods available are:

To view stock valuation under each of these methods, in separate columns
in the same Balance Sheet
1. Press Alt+N to display the Auto columns .

2. Select Stock Valuation Methods in Repeat Using field. The columnar report displays values for each of
the valuation method used as shown below:

The Balance Sheet displaying all the methods of stock evaluation used appears as shown below:
View Balance Sheet of Audit and Compliance
1. Go to Gateway of Tally > Audit & Compliance > Financial Statements > Balance Sheet .

2. Select required Schedule VI Group and press Enter .

Note: NoteSummary report will also appear when Enter is pressed on the Default Tally Group (when the Note
Summary is in the expanded mode).
On drilling down further into the Grouped/Ungrouped heads, users can perform Schedule VI Rule
Configuration from the Note Summary report, using the Ctrl+Enter : Classify or C : Multi Classify options.

Button options in the Note Summary report

● F1 : Detailed : Click F1 : Detailed or press Alt+F1 to view the Note Summary in detailed form. The
detailed view for Note Summary displays the default Tally Groups with balances, which have been
classified under various Schedule VI Groups .

● N: Notes : Select any Schedule VI element and press Enter .

o Click N: Notes or press Alt+N to add the notes to the Note Summary .

o Specify the required notes in the Notes to Schedule VI screen.
o Press Enter twice to accept and save the Notes to Note Summary . The Note Summary with the Notes
appears as shown below:

● F9: Inv Reports : Click F9 : Inv Reports or press F9 to navigate to the default Inventory

Reports like Godown Summary , Movement Analysis , Stock Summary , and so on.

● F10: Acc Reports : Click F10 : Acc Reports or press F10 to navigate to the default Accounting

Reports like Balance Sheet , Cash Flow , Trial Balance , and so on.

● F10 : Audit Reports : Click F10 : Audit Reports or press Alt+F10 to navigate to the other Audit

Reports within Statutory Audit .

● Ctrl+Alt or F10 : Restore Def. : Click this button in the Note Summary screen, to restore any

classified transaction back to its original status before classification.
 o Select a revised Schedule VI head and drill down to the second level in Note Summary .
o Select any ledger account or all ledgers by pressing Spacebar or Ctrl+Spacebar , respectively.
o The buttons Ctrl+F10 : Restore Def. and Alt+C : Multi Classify are enabled.
o The Note Summary screen with the enabled buttons is displayed as shown below:

Configuration options

Click F12 : Configure or press F12 to change the default display for the above report.

● Set Show Items with Zero Balance to Yes to display the default Tally Groups with Nil Balance in the
detailed format for the Note Summary.

● Set Show Nett Balance to Yes to display only Nett Balance instead of Debit and Credit Balances .

● Set Show Notes to Yes to display the Notes entered for the selected Schedule VI element if any.
 ● Scale Factor for Values : Select the required Scale Factor from Crores, Hundreds, Lakhs, Millions, Ten
Lakhs, ten Millions, Ten Thousands, Thousands or Default for displaying the balances in the Schedule
VI Balance Sheet .

● Set Show All Ungrouped Elements to Yes to view the Schedule VI elements that do not
have Groups/Ledgers reclassified under them.

Print Notes of Balance Sheet

1. Go to Gateway of Tally > Audit & Compliance > Financial Statements > Balance Sheet .

2. Select required Schedule VI Group and press Enter .

3. Press Alt+P to print the Note for the selected Schedule VI Head .

4. Press Enter to Print.