Balance sheet and income statement: how to read Forms No. 1 and No. 2

The forms in Uzbekistan

• the balance sheet — Appendix 1 to Regulation No. 3567;
• for micro-firms and small enterprises, annual financial statements consist of the balance sheet and the statement of financial results (clause 10);
• deadline — no later than 1 March of the following year (clause 7);
• from 1 January 2027, National Financial Reporting Standard (NSFO) No. 1 is introduced for public interest entities and budget organisations.

What the balance sheet shows

The balance sheet is a snapshot at a date. It has two parts: assets, that is, the company's resources, and the sources that financed them — equity and liabilities. The totals of both parts are equal, hence the name of the form.

It is more useful to read the balance sheet through ratios rather than line by line: how much cash is tied up in inventories and receivables, what share of assets is financed by borrowings, and whether equity is growing.

• cash and short-term investments
• inventories and work in progress
• accounts receivable
• fixed assets and intangible assets
• accounts payable and borrowings
• charter capital and retained earnings

What the profit and loss statement shows

This form describes not a position but movement: how much revenue was recognised for the period, which expenses correspond to it and what result was achieved at each level — from gross profit to the bottom line.

It is this layering that makes the form useful. A company may have healthy gross profit and a loss at the bottom line — in that case the question is not about the product but about fixed costs or the financing burden.

How the balance sheet and the profit and loss statement are linked

The link is direct: the net result for the period from the profit and loss statement flows into equity on the balance sheet. That is why the two forms cannot be looked at separately — a discrepancy between them almost always means an accounting error.

There is also a reverse relationship. Revenue growth in the profit and loss statement that is not backed by movement on the balance sheet usually means revenue has been recognised but payment has not yet arrived — and this shows up in accounts receivable.

Why profit does not equal cash in the bank

Accounting recognises income and expenses in the period to which they relate, not when payments pass. Goods shipped and documents signed means revenue is recognised, even if the money arrives later.

Hence the familiar situation: the statement shows a profit, but there is nothing to pay with. The reason is that the money sits in inventories and unpaid receivables. To see this in advance, a statement of cash flows is added to the two forms.

Common errors in the two forms

Most discrepancies arise not from arithmetic but from the period of recognition. A document arrives late, a transaction lands in the wrong month — and both forms are distorted at once.

The second group is balances no one has confirmed. Inventories were not counted, receivables were not reconciled with counterparties, and amounts with nothing behind them sit on the balance sheet for years.

• revenue and expenses recognised in different periods
• inventory balances not confirmed by a count
• receivables not reconciled with counterparties
• liabilities arising by the reporting date not recorded
• non-standard transactions recorded by analogy
• intra-group balances not eliminated

Who needs the forms checked, and why

A bank, investor or buyer of a business looks at the balance sheet and the profit and loss statement first — and trusts them exactly as much as they have been verified. An independent report settles that question.

The owner needs a review for a different reason: to know whether decisions can be made on the basis of these figures. If the forms are put together on the last evening before the deadline, they reflect the deadline, not the state of the business.

How we work with clients' financial statements

Over 13 years of practice, Leader Audit has carried out more than 220 audits and helped clients recover more than UZS 200 billion in VAT.

We can both prepare the forms as part of bookkeeping services and review forms that have already been prepared. In both cases we explain what lies behind the figures and show which indicators need the owner's attention.