How to Prepare Financial Statement Document
If you're a thriving business owner, you might be aware of the financial statement. In case you're not aware, we are here to help you with the complete details. A financial statement is the financial results for a particular organization. It represents the financial position of a company along with cash flows. Financial statements play a vital role for any organization as this statement helps business owners, investors, and other team members to know about the company's profitability. If you're looking for a complete guide that will help you to know about the different types of financial statements and how you can prepare them, you've landed at the right place. Continue reading!
Types of Financial Statement
A financial statement is a way for companies to know the larger picture of their business. It depicts the cash flow, financial position as well as performance of a company in the market. Many investors, creditors, as well as lenders, utilize these statements to know the actual worth of the company/entity. Let's delve into the four main types of financial statements.
The Income Statement
The income statement is one of the most important types of financial statements. The reason behind the importance of income statements is that it reveals the revenue of the entity for a specific period of time. Most often, companies calculate this income statement to reveal the exact profit or loss incurred by the company. To calculate the income statement, you need to first calculate the sales and then subtract the expenses that are made by the company.
It is quite easy to calculate, and you can easily know how much a company has earned or lost over a specific period of time. Aside from the simple profit or loss, the income statement will reveal the reports per earning share. This helps companies to know about the money that shareholders would receive in case the company decides to distribute the earnings.
The Balance Sheet
The second important financial statement is the balance sheet which gives information regarding liabilities, assets, and equity. To understand the balance sheet better, let's understand the three terms - liabilities, assets, and equity.
- All the things that have a certain value or can be sold come under assets. The physical property and cash that your company generates are regarded as assets too.
- The money that you owe to someone, be it a loan for a third party, money borrowed from a bank, or rent of a building, comes under liabilities.
- Equity of shareholders, also known as capital or net worth, is the leftover money after you've sold your assets and paid your liabilities. This money is always given either to the owner of the company or to shareholders.
Generally, the balance sheet records the assets, liabilities, and shareholders' equity for a specific period of time.
The Statement of Cash Flows
This document represents the change in equity for a specific time span. It includes the major things like shares purchased, dividends issued, as well as loss of profit earned. When the financial statement is used internally, you don't have to attach the statement of changes in equity. The reason is that the document doesn't have enough information regarding the company.
So these were the four main types of financial statements that a company can prepare for revenue evaluation.
How to Prepare a Financial Statement Document For Your Company?
Are you looking for an easy step-by-step guide that will help you to prepare a financial statement easily? Be at peace now! Here we've jotted down the steps that will help you to prepare a financial statement.
- Your first step is to verify the receipt of invoices received from the suppliers. Compare everything to ensure that you've received the invoices from every supplier.
- Then, you need to verify the issuance of client invoices too. If, in case, you haven't issued any customer invoice, try to issue it as soon as possible.
- List the wages that haven't yet been paid. Then, you need to calculate the two expenses - amortization and depreciation.
- Go with a physical inventory count to know which goods have been sold. Record each and every report in the accounting reports.
- Reconcile bank accounts and create journal entries. Remember, they should match the details of the bank statement. Post the account balances to the general ledger and proceed to the next step.
- Review accounts and financials until there are zero errors. It's quite common that financials will have multiple errors. Therefore, review to correct each error and prepare an errorless financial statement.
- Accrue the expenses related to income tax according to your errorless financial statement. Then close your accounts for the period.
- You're all set to issue a financial statement by printing the final version. Be sure you prepare an adequate cover letter. This letter will explain the important points about financial statements.
Following the above steps, you can easily prepare a financial statement without any extra effort.
How H&CO can help
If you're looking to create a financial statement for your company, be sure you follow the required set of guidelines. There are many times when you don't have to prepare all the different types of financial statements. The two most important documents or statements - income statement and balance statement would be enough for the minimum level. On the other hand, if you run a publicly held business or you're reporting for the full year, you are likely to have a full set of financial statements. We hope this post will help you out with the necessary information regarding the financial statement and how you can prepare it.