ICAI Guidance Note explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Companies have Schedule III. Proprietorships, partnership firms and other entities that are not companies had no standard layout until ICAI issued its Guidance Note on Financial Statements of Non-Corporate Entities (August 2023 edition), followed by a question-and-answer publication in August 2025. This guide describes who the note covers, what its formats contain and how a trading proprietorship's year-end balances fit into them. The note is recommendatory guidance of ICAI, not law; later changes should be checked on icai.org. Our financial statement preparation team uses these formats for non-company clients.
The note is effective for financial statements covering periods beginning on or after 1 April 2024 and replaces the earlier Technical Guide. It covers all business or professional entities other than companies and LLPs, such as proprietorships, Hindu undivided families, partnership firms, associations of persons, societies, trusts and statutory bodies, unless a statute, regulator or specific ICAI guidance prescribes another format. It recommends a balance sheet headed by owners' funds, a statement of profit and loss that carries partners' remuneration where it applies, and notes. It is recommendatory, but the FAQ publication says an auditor must report non-adherence to the formats.
Who is covered, and who is not
| Point | What the note and the FAQ say |
|---|---|
| Covered | Sole proprietorships, Hindu undivided families, registered and unregistered partnership firms, associations of persons (including bodies of individuals and resident welfare associations), societies, trusts, statutory corporations and authorities, and any organisation engaged fully or partly in business or professional activity |
| Scoped out | LLPs (they have their own note: see our guide to the LLP note) |
| Exceptions | Where formats or principles are prescribed by a statute, regulator or authority; autonomous bodies of the Government of India following the prescribed uniform format; entities for which ICAI has given specific guidance, such as educational institutions, political parties and not-for-profit entities |
| Effective date | Periods beginning on or after 1 April 2024 |
| Authority | A guidance note is recommendatory (FAQ publication); the auditor discloses non-adherence to the formats in the report and judges whether it leads to a modified opinion |
Which accounting standards apply to such entities depends on ICAI's classification criteria. The note's text of August 2023 carries the criteria then in force; ICAI's revised criteria for periods commencing on or after 1 April 2024 classify non-company entities as micro, small and medium sized entities (MSMEs) or Large entities. We explain the levels and the relaxations in our guides on classification of entities and MSME relaxations for non-company entities; they are not restated here. Companies use Schedule III instead, never these formats.
What the formats contain
| Part | What it provides |
|---|---|
| General instructions | The formats apply to the balance sheet and the statement of profit and loss; changes are made where a statute or standard requires; terminology may change (an association may say members' funds); disclosures are in addition to those in the standards; each face item is cross-referenced to the notes; rounding depends on total income; comparatives for the preceding period are given except in the first statements |
| Balance sheet | Owners' funds (owners' or partners' capital account, current account where relevant, reserves and surplus); non-current liabilities; current liabilities; non-current assets; current assets |
| Balance sheet notes | Current and non-current tests by operating cycle and twelve months; for each owner's capital or current account: opening balance, capital introduced, remuneration, interest, withdrawals, share of profit or loss, closing balance; classification of reserves, borrowings (secured or unsecured, terms of repayment, guarantees by owners) and provisions |
| Statement of profit and loss | Revenue from operations; other income; expenses; profit before partners' remuneration and tax; partners' remuneration where applicable; tax expense; discontinuing operations |
| Profit and loss notes | Revenue classes; finance cost classes, with interest on partners' or members' capital separate; classes of other income; items above one per cent of revenue or 1,00,000, whichever is higher |
| Appendix B | Illustrative formats, not reproduced here |
The FAQ publication, in its own answers, adds that line items can be added or substituted when relevant to understanding, that a line with nil in both years may be omitted if that does not affect the true and fair view, and that comparatives in the same format are required from 1 April 2024 except in an entity's first statements.
Method
- Open the owner's capital account note first: opening balance, capital introduced, drawings and profit.
- Classify borrowings as long-term or short-term; show current maturities of long-term borrowings separately within short-term borrowings.
- Apply the operating cycle and twelve-month tests to every asset and liability.
- Group trade receivables and payables only if they arise from sale or purchase in the normal course.
- Prepare the statement of profit and loss in the format and tie its profit to the capital account.
Worked example: Mahesh Hardware Traders
The entity and all figures in this example are invented for illustration.
Mahesh Hardware Traders is a sole proprietorship. Income tax is the proprietor's own liability and is outside the example (see our income-tax guides).
Owner's capital account note.
| Item | Amount |
|---|---|
| Opening balance | 8,00,000 |
| Capital introduced during the year | 1,00,000 |
| Share of profit for the year (100 per cent) | 3,40,000 |
| Withdrawals during the year | (2,40,000) |
| Closing balance | 10,00,000 |
Balance sheet in the Guidance Note layout.
| Owners' funds and liabilities | Amount | Assets | Amount |
|---|---|---|---|
| Owner's capital account | 10,00,000 | Non-current assets | |
| Non-current liabilities | Property, plant and equipment | 6,00,000 | |
| Long-term borrowings (bank term loan, after current maturities) | 3,20,000 | Long-term loans and advances (shop deposit) | 1,00,000 |
| Current liabilities | Current assets | ||
| Short-term borrowings: cash credit 2,00,000 and current maturities of the term loan 80,000 | 2,80,000 | Inventories | 7,00,000 |
| Trade payables | 3,00,000 | Trade receivables | 4,00,000 |
| Other current liabilities | 70,000 | Cash and bank balances | 1,50,000 |
| Short-term provisions (employee benefits) | 30,000 | Short-term loans and advances | 40,000 |
| Other current assets (prepaid expenses) | 10,000 | ||
| Total | 20,00,000 | Total | 20,00,000 |
Statement of profit and loss. Inventories were 6,00,000 at the start and 7,00,000 at the end.
| Particulars | Amount |
|---|---|
| Revenue from operations | 60,00,000 |
| Other income | 20,000 |
| Total income | 60,20,000 |
| Purchases of stock-in-trade | 45,00,000 |
| Changes in inventories of stock-in-trade (6,00,000 - 7,00,000) | (1,00,000) |
| Employee benefits expense | 5,40,000 |
| Depreciation | 1,00,000 |
| Finance cost (interest on borrowings) | 60,000 |
| Other expenses | 5,80,000 |
| Total expenses | 56,80,000 |
| Profit for the year, transferred to the owner's capital account | 3,40,000 |
Check. Liabilities side: 10,00,000 + 3,20,000 + 2,80,000 + 3,00,000 + 70,000 + 30,000 = 20,00,000. Assets side: 6,00,000 + 1,00,000 + 7,00,000 + 4,00,000 + 1,50,000 + 40,000 + 10,000 = 20,00,000. Capital: 8,00,000 + 1,00,000 + 3,40,000 - 2,40,000 = 10,00,000. Profit: total income 60,20,000 less total expenses 56,80,000 = 3,40,000, the same figure as the share of profit in the capital note.
A firm would add a current account for each partner, interest and remuneration lines, and would show partners' remuneration after profit before remuneration and tax, as in the note's profit and loss format.
Common mistakes
- Using Schedule III headings for a proprietorship; the formats here are the recommended ones.
- Mixing the owner's drawings into expenses instead of the capital account note.
- Showing current maturities of the term loan within long-term borrowings.
- Omitting comparatives in the second and later years.
- Treating a not-for-profit entity under this note when ICAI has issued specific guidance for such entities.
Need help with accounts for a non-company entity?
If your proprietorship, firm or association needs year-end statements in these formats, our team can prepare them from your ledgers with the notes. See our financial statement preparation service and send us the trial balance.
Key takeaways
- The note covers business or professional entities other than companies and LLPs, from periods beginning on or after 1 April 2024.
- Owners' funds replace equity; each owner's account is disclosed with its movements.
- Short-term borrowings show current maturities of long-term borrowings separately.
- Comparatives are required except in an entity's first statements.
- It is recommendatory guidance, and auditors report non-adherence.
Read next
- Final accounts of a sole proprietor: trading account, profit and loss and balance sheet
- ICAI Technical Guide on Cash Basis of Accounting
- ICAI Guidance Note on Financial Statements of LLPs
Disclaimer: Based on the Accounting Standards issued by the Institute of Chartered Accountants of India as on 1 April 2025, the Companies (Accounting Standards) Rules, 2021 as amended up to G.S.R. 169(E) of 10 March 2026, the Companies Act, 2013 and the ICAI guidance named in the article, as consulted on 4 October 2026. The worked example uses invented figures. Later amendments should be checked on icai.org and mca.gov.in. This article is general information, not legal advice; check the official text before acting.