## Section 2(40) – Meaning of 'Financial Statement'
'Financial Statement' in relation to a company includes:
1. Balance Sheet as at the end of the financial year.
2. Profit and Loss Account for the financial year.
In case of a company carrying on activity not for profit (Section 8 company / NPO), it is called the 'Income and Expenditure Account' for the financial year.
3. Cash Flow Statement for the financial year.
4. Statement of Changes in Equity, if applicable.
5. Any explanatory note annexed to, or forming part of, any document referred to in (1) to (4).
### Exemption – Cash Flow Statement is OPTIONAL for:
The Cash Flow Statement is not mandatory for the following classes of companies:
One Person Company (OPC)
Small Company
Dormant Company
Private Company that qualifies as a Start-up
### Pedagogical Note
The definition uses 'includes' — meaning it is inclusive, not exhaustive. Any other statement that is annexed and explains the financials would also form part of the 'financial statement' for the purposes of compliance under the Act.
Worked example
### Example 1
Example 1: Tiny Tech Pvt. Ltd. is a registered start-up. While finalising accounts, the CFO asks whether a Cash Flow Statement is mandatory.
Solution: No. Under the proviso to Sec. 2(40), a private company that qualifies as a Start-up is exempt from preparing the Cash Flow Statement.
### Example 2
Example 2: XYZ Foundation, a Section 8 company, prepares a Profit & Loss Account. Is this correct?
Solution: No. For Section 8 companies (not-for-profit), the relevant statement is called the 'Income and Expenditure Account', not Profit & Loss Account, although it serves the same function.
⚠️ Common exam mistakes
Treating the definition as exhaustive — students forget the 'includes' wording allows for additional statements.
Assuming all small companies must prepare Cash Flow Statement — they are exempt.
Missing the 'Statement of Changes in Equity' as a component of financial statements (added with Ind AS).
Calling the P&L of a Section 8 company a 'Profit and Loss A/c' rather than 'Income and Expenditure A/c'.
Bare-Act text Section 2(40) · Companies Act, 2013 · click to expand
'financial statement' in relation to a company, includes — (i) a balance sheet as at the end of the financial year; (ii) a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year; (iii) cash flow statement for the financial year; (iv) a statement of changes in equity, if applicable; and (v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv): Provided that the financial statement, with respect to One Person Company, small company, dormant company and private company (if such private company is a start-up) may not include the cash flow statement.