Preparing financial statements for first-timers or the less experienced is complicated. It involves a very long process of accounting for your information and turning it into a standard set of financials.
Financial statements are a very important piece of business. Once they are completed, statements are then distributed to all management and investors, who then take this data and use it to evaluate the said business's cash flow and overall performance.
Being that it is such an essential aspect for running a company, we believe business owners or entrepreneurs should learn the steps that go into the preparation and acquiring of these statements. Even if you don't file them yourself, it is always something owners should be mindful about.
Because of these, we have created a small guide below to help readers learn the truth about financial statement preparation and demonstrate what it takes to get this job done.
Preparation Steps:
Step 1: Verify Supplier Invoice Receipts
Start by comparing your receiving log to ensure all supplier invoices have been submitted before accruing the expenses that have yet to be received.
Step 2: Calculating Any Depreciation
Calculate amortization expenses and depreciation for all of your fixed assets in your records.
Step 3: Organizing Your Bank Account
Post all subsidiary ledger balances before reviewing the sheet accounts. Once this is done, conduct a bank reconciliation and create entries to match accounting records with all banking statements.
Step 4: Accrue Taxes
Accrue your income tax expenses based on corrected statements.
Step 5: Close Subsidized Accounts
Close any or all subsidiary ledgers for the period of your financial statement and only reopen them in the following report period.
Step 6: Issue Financial Statements
Print out a finalized version of your financial statements. Based on this info, always write footnotes to accompany the documents before completing the issues through separating them into bundles and distributing.
What Should Be Filed
Without analyzing financial data, businesses are flying blind. Statements should be made available for any small businesses to review what changes need to be made to stay running.
We have provided a few of the most critical financial statements one needs to stay on track with their company.
1. Income Statement: This is also known as the profit or loss statement because of its ability to show annual profitability within your company for whichever period is in question.
2. Balance Sheet: These sheets are financial statements that illustrate a company's financial position at any given point in time- otherwise known as the last day of the cycle in accounting.
3. Cashflow Statement: Even when your company is turning a profit, there are many cases where they may be falling short due to less to non-adequate cash flow. This is why it's crucial to prepare cash flow statements as it provides records of revenue being received.
4. Retained Earnings: This statement is around the second financial statement a company will need to prepare when working through the accounting cycle. It includes net profits and losses calculated showing the distribution of one's profits and is used to see the total retained earnings up to date.
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