Accounting Policies Builder – Draft Note 1 in Minutes

What this builder does

Every set of financial statements opens its notes with Note 1 – Significant Accounting Policies, and in practice most preparers rebuild it each year by copying an old file and hunting for the sentences that no longer fit. This free builder assembles the note from scratch in seconds: choose the entity type, tick the policies that apply, pick the method options – depreciation on written down value or straight line, inventory cost on FIFO or weighted average, gratuity on actuarial valuation or management computation – and the tool drafts a numbered, professionally worded note. The draft is fully editable on screen, and you can copy it, download it as a Word file or print it straight to PDF with the CalcGuru working header.

Wording that follows the entity type

The same policy reads differently for a company and for a non-corporate entity, and the builder handles that automatically. For a company, the basis of preparation refers to the Accounting Standards notified under the Companies (Accounting Standards) Rules, 2021, the Companies Act, 2013 and Schedule III (Division I), and depreciation refers to the useful lives prescribed in Schedule II. For a partnership firm, LLP or proprietorship, the basis refers to the Accounting Standards issued by the ICAI to the extent applicable to the entity, and depreciation refers to useful lives estimated by the management. For a proprietorship, the tax policy switches to the correct statement that income is assessed in the hands of the proprietor, so no tax provision appears in the accounts. The earnings per share policy is offered only for companies, where AS 20 applies.

How to use the note

Generate the draft, then read it once against the facts of the entity. Delete any sentence that does not reflect what the entity actually does, and add anything specific – a unique revenue stream, a government grant, an amalgamation – that a standard template cannot anticipate. The accounting policies note is a statement of what the entity did, not a wish list; auditors expect it to match the books. The builder gives you a clean, consistent starting point so the review takes minutes instead of an evening.

Accounting policies – Frequently Asked Questions

Which policies must always be disclosed?

AS 1 requires disclosure of all significant accounting policies, and specifically the basis of preparation. Depreciation, inventory valuation and revenue recognition are the three that appear in virtually every set of financial statements; the rest depend on what the entity actually has – foreign currency dealings, borrowings against qualifying assets, investments, and so on.

Does a small private company need the deferred tax paragraph?

Yes, if AS 22 timing differences exist – depreciation differences alone usually create them. Only where the entity has no timing differences at all can the paragraph be dropped. For a proprietorship the question does not arise, because income is taxed in the hands of the proprietor.

Which depreciation wording applies to a partnership firm?

Schedule II useful lives bind companies only. A firm or proprietorship depreciates over useful lives estimated by the management (many use Income-tax rates in practice); the builder words the policy accordingly when you select a non-corporate entity.

Is the gratuity provision required for every entity?

Provision is required once the Payment of Gratuity Act applies – broadly, ten or more employees. Larger entities obtain an actuarial valuation under AS 15; smaller ones commonly provide on a computed basis. Pick the option that matches the entity, or mark it not applicable.

Can I edit the generated note?

Yes – the draft is directly editable on the page before you copy, download or print it, and the Word download opens in any word processor for further editing. Always adapt the standard text to the facts of the entity before adoption.

Is the cash flow statement policy needed for every company?

No. One person companies, small companies and dormant companies are exempt from preparing a cash flow statement, so they can drop that policy. Include it for every company that prepares one.