Preparing a financial statement is a crucial step toward creating a successful business. It provides analytical information about operational results, financial positions, and the cash flow that helps to make critical decisions. However, a lack of proper preparation and knowledge can cause inaccurate or incomplete reporting, affecting business plans and goals. So, before you start creating a financial statement, let us share some quick guidelines for the preparation of financial statements that will help you manage your business operations and goals efficiently.
what is a financial statement?
A financial statement is a document that individuals or companies regularly produce to indicate their assets, liabilities, equity, revenue, profits, and expenses. In addition, it includes information from the balance sheet, income statement, and cash flow statement.
The financial statement is a crucial part of business financial management that shows investors and other stakeholders the company’s current economic landscape and predicts the future vision and plan.
how to prepare a business financial statement
Quick guidelines for the preparation of financial statements:
- Be clear about your business’s mission and goals for the short and long term.
- Identify which numbers in your financial statement matter the most to your business and make sure all of your numbers are meaningful and reliable.
- Plan for any changes in accounting rules that might affect your company’s financial statements.
- Create clear documentation for expenses, cash flow, profit, assets & liabilities, and breakeven points to measure the performance with respect to the forecasts.
- Educate yourself about best practices for preparing a financial statement.
A business financial statement summarises the company’s economic activities over a specified period. For small and medium-sized businesses, creating financial statements begins with day-to-day bookkeeping.
You can prepare different types of financial statements to show how your business is performing, including balance sheets, income sheets, and cash flow statements.
You also have a few ways to prepare a business financial statement. From working on your own to managing a full-fledged accounts department, you can choose any method that suits your requirements. The simplest way is to use an outsourced accounting department. Of course, you can also try it yourself, but it may seem daunting without the proper knowledge and well-written sources for budgeting and accounting.
what are the parts of a financial statement?
A financial statement is a document that a company releases to show the state of its finances. It includes a balance sheet, income statement, and cash flow statement. The three main parts of financial information are assets, liabilities, and owner’s equity.
Assets are items a company owns or has claimed over, like cash, property, equipment, etc.
Liabilities are any debt that the company owes, like loans or bonds.
Owner’s equity is how much money the company has in its accounts after it pays off all its debts.
Financial Statements provide an investor with a view of how the company is doing. They can provide important information, such as the total assets of the company and how much debt it might have on its books. Since they show you how the company is doing at a given time, they are typically released monthly or quarterly.
steps for completing a business financial statement
To ensure your financial statements are accurate, you should complete a set of tasks to help you prepare them. These tasks include: completing the balance sheet, preparing the cost of goods sold, ensuring all accounts have an ending balance, and calculating the depreciation.
Many people have a difficult time preparing their financial statements. They either don’t know what is required or are unconfident about their abilities. Some critical guidelines for the preparation of financial statements include the following:
- Read the entire statement and familiarize yourself with it
- Consider using the worksheets provided
- Establish good account balances and debts
- Make sure all balances are reported in dollars, not as a percentage of net worth
- Keep all records for at least three years after the fiscal year-end date
- Keep your records organized by making a list of all transactions that have occurred over the year
- Include income and expenses and any other relevant transactions like loans or investments.
Getting your financial statements in order is essential, and the above-shared tips will help you simplify your reporting processes. But will it be enough for you to create all types of financial statements? If your answer is no, you may need professional accounting services from experts who know how to manage your economic activities.
If you run a business, hiring an accountant may not be an easy task. So, get an outsourced accounting professional who can manage your finances in the best way possible.