Notes to accounts under Schedule III: the list of notes, their order and a format

Every set of company accounts ends with the same line on the face of the balance sheet: "See accompanying notes to the Financial Statements". What those notes should contain, in what order, and how they tie back to the face is where small-company drafts most often wander — a policy note copied from an Ind AS client, notes numbered in a different order every year, or a contingent liability note that nobody updated. This article sets out a complete notes to accounts format under Schedule III (Division I, non-Ind AS) for a typical small company: the numbered list of notes, the order convention, the cross-referencing rules, a skeleton for the accounting policies note, and which parts are law and which are practice.

What Schedule III actually says about the notes

Schedule III (often called Schedule 3) does not contain a numbered list of notes. What it does contain — in the Schedule III general instructions and the format itself — is this:

• Content. General Instruction 3(i): the notes contain information in addition to the statements — narrative descriptions or disaggregations of items recognised, and information about items that do not qualify for recognition (contingent liabilities are the obvious example).
• Cross-referencing. General Instruction 3(ii): each item on the face of the Balance Sheet and the Statement of Profit and Loss must be cross-referenced to any related information in the notes. The formats carry a "Note No." column for exactly this purpose.
• Balance. The same instruction asks for a balance between excessive detail and too much aggregation. ICAI's Guidance Note on Division I calls this a matter of professional judgement.
• Other disclosures go in the notes too. General Instruction 2: Accounting Standard disclosures are made in the notes (unless an AS requires them on the face), and "all other disclosures as required by the Companies Act" are also made in the notes.
• Comparatives and units. General Instruction 5 requires previous-year amounts for all items "including notes" (except in the first financial statements), and General Instruction 4 requires one unit of measurement used uniformly.

The notes are not an annexure in the loose sense. Section 2(40) defines "financial statement" to include any explanatory note annexed to, or forming part of, the balance sheet, profit and loss account and cash flow statement — which is why the heading "notes forming part of the financial statements" is the accurate one. For the complete line-by-line framework, see the Schedule III guide.

The notes to accounts format: a complete numbered list

The table below is a typical set of notes for a small private company preparing Division I statements. The numbers are illustrative; the source column shows where each requirement comes from. Drop a note only if both years are nil.

Two placement choices are common and both are acceptable as long as they are consistent: the MSMED Act details under heading FA can sit inside the trade payables note or in a separate note, and the PPE and CWIP ageing can sit inside the PPE note or with the additional regulatory information. What matters is that each item is there and is easy to find. The trade receivables and payables ageing tables, for instance, are usually placed inside notes 9 and 18 so the ageing total sits next to the balance it explains.

The order convention: follow the face

Because Schedule III is silent on numbering, the order of the notes is practice. The convention that works best — and the one readers expect — is:

1. Basis first. Corporate information and significant accounting policies come before any figure. AS 1 says the policies should "normally" be disclosed in one place; a single note 2 does that.
2. Then the balance sheet, top to bottom — equity and liabilities first, then assets, in the order of the Part I format.
3. Then the Statement of Profit and Loss, top to bottom — revenue, other income, each expense line, exceptional items, tax, EPS.
4. Then the disclosures that do not belong to one line — contingent liabilities, related parties, AS-specific notes, statutory disclosures, the additional regulatory information and the reclassification note.

Keep the numbers stable from one year to the next. If a company has no current investments this year and none last year, there is no note for them; but if last year's balance sheet showed current investments, this year's notes still need the comparative, even if the current-year figure is nil. Renumbering every year makes it harder for a reviewer to compare the two sets, so many firms keep a standard numbering in their template and simply omit notes that are nil in both years.

Cross-referencing rules: face to note, note to note

The cross-referencing requirement runs in both directions in practice:

• Face to note. Every line item on the face that has a note gets the note number in the "Note No." column. Totals and sub-totals (Total income, Profit before tax) do not need one.
• Note to face. The total of each note equals the line it supports, for both years. This is the arithmetic check most likely to fail after a late adjustment.
• Note to note. Where the same item appears in two notes, refer rather than repeat: "Loans from directors (refer Note 32)" in the borrowings note; "Current maturities of long-term borrowings (refer Note 5)" in the short-term borrowings note.

Here is how the face looks with the note column filled in, for a company with total income below ₹100 crore reporting in lakhs:

And the supporting note, showing a note-to-note reference:

The note total of 146.35 agrees to the face for the current year and 132.90 for the previous year. Where the face carries two lines from one note — as with the MSME split of trade payables — the note shows both sub-totals so each face line can be traced. Classification decisions behind notes like this one are covered in current and non-current classification under Schedule III.

The accounting policies note: a skeleton

AS 1 requires all significant accounting policies to be disclosed, as part of the financial statements, normally in one place; any change in a policy that has a material effect, now or in later periods, must be disclosed, with the amount of the current-period effect where ascertainable (or a statement that it is not). The fundamental assumptions — going concern, consistency and accrual — need no statement if they are followed, but must be disclosed if one is not. AS 1 also warns that disclosure cannot cure a wrong treatment.

A small company's note 2 typically covers the following, but only the ones that apply:

• Basis of preparation — historical cost convention, accrual basis, compliance with the Accounting Standards notified under section 133 and the relevant provisions of the Act, and Division I of Schedule III.
• Use of estimates — the fact that estimates are used (useful lives, provisions, doubtful debts) and how revisions are treated.
• Current / non-current classification and the operating cycle assumed.
• Property, plant and equipment and depreciation — measurement basis, depreciation method, useful lives (with reference to Schedule II where followed) (AS 10).
• Intangible assets and amortisation (AS 26), and impairment (AS 28).
• Inventories — lower of cost and net realisable value and the cost formula (FIFO or weighted average) (AS 2).
• Revenue recognition — sale of goods, services, interest and other income (AS 9).
• Investments — current at lower of cost and fair value, long-term at cost less other-than-temporary decline (AS 13).
• Employee benefits — provident fund, gratuity, leave encashment (AS 15).
• Foreign currency transactions (AS 11), borrowing costs (AS 16), government grants (AS 12) and leases (AS 19) — where there are any.
• Taxes on income — current and deferred tax, and the recognition test for deferred tax assets (AS 22).
• Provisions, contingent liabilities and contingent assets (AS 29).
• Earnings per share (AS 20) and cash and cash equivalents for the cash flow statement (AS 3), where one is prepared.

Two practice points. First, write the policy the company actually follows: a written-down-value depreciation policy next to a straight-line schedule is a visible contradiction. Second, do not import Ind AS wording — "expected credit loss", "fair value through OCI" and "right-of-use asset" have no place in Division I statements. Division II companies follow Ind AS 1, which has its own guidance on structure.

The other disclosures that often go missing

The notes after the profit and loss lines are where small-company drafts most often have gaps, because the trial balance does not prompt them:

• Contingent liabilities and commitments — claims not acknowledged as debt, guarantees, other contingent liabilities; capital commitments, uncalled liability on partly paid investments, other commitments (heading T).
• Related parties — names and relationships, transactions by type, and year-end balances; see related party disclosures (AS 18) for the items commonly left out.
• MSME dues — the five items under heading FA, prepared from the same supplier list as the face split.
• Additional regulatory information — fourteen items under heading Y, including the Schedule III ratios with explanations for changes of more than 25%.
• Part II additional information — CSR (for companies covered by section 135), undisclosed income surrendered in tax assessments (for FY 2025-26 this still refers to the Income-tax Act, 1961), and crypto currency.
• Act disclosures — section 186(4) particulars of loans, investments, guarantees and security; political contributions under section 182(3), where any.

Mandatory or practice? A quick split

For a small or medium-sized company (SMC) as defined in the Companies (Accounting Standards) Rules, 2021, some notes shrink: AS 17 segment reporting does not apply, and AS 15, 19, 20, 28 and 29 carry relaxations (AS 22 also has one, for Pillar Two disclosures only) — for example, diluted EPS need not be disclosed under AS 20. Confirm the company's SMC status for the year before dropping any of them. A company that uses any of these exemptions must also say so in a note: the Rules prescribe a statement that the company is a Small and Medium Sized Company as defined in the Companies (Accounting Standards) Rules, 2021 and has complied with the Accounting Standards as applicable to an SMC. A company that used the exemptions last year but no longer qualifies must disclose that too.

Frequently asked questions

Sources

• Companies Act, 2013 — Schedule III Division I and section 2(40) (India Code, amended text)
• Schedule III amendment — G.S.R. 207(E), 24 March 2021 (Gazette)
• ICAI — Guidance Note on Division I – Non Ind AS Schedule III (Revised January 2022)
• ICAI — AS 1 Disclosure of Accounting Policies
• ICAI — Accounting Standards (compendium)
• Companies (Accounting Standards) Rules, 2021 — G.S.R. 432(E)
• Companies (Accounting Standards) Amendment Rules, 2026 — G.S.R. 169(E)

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