Preparation of Financial Statements

Preparing financial statements is an essential task for assessing a company’s financial health. Financial statements give business owners the information they need to reflect the business activities and financial performance of the company as well as help them identify areas for improvement. Here are the steps to follow when preparing financial statements for your business.

Gather and Organize Financial Data

First, compile all relevant financial data – invoices, receipts, bank statements, and expense reports – to paint a clear picture of your business’s financial standing. Divide the data into the following categories: revenue, expenses, assets, and liabilities. If you don’t want to document this information manually, you can opt for pre-accounting software that categorizes your financial data.

Draft Preliminary Financial Statements

Drafting your preliminary financial statements involves three main statements: an income statement, a balance sheet, and a cash flow statement.

• Income statement: Shows if your business has made a profit or loss during a specific time. This can be figured out by subtracting costs from revenue.
• Balance sheet: Reports a company’s assets, liabilities, and equity. Essentially, it is a quick overview of what a company owns, owes, and the owner’s interest in the company after liabilities are subtracted from assets.
• Cash flow: Tracks the amount of cash entering and leaving a company during a specific time. A cash flow statement details cash generated by operating activities, investing activities, and financing activities.

Review Data

Reviewing data on your financial statement is critical to ensure accuracy. Be sure to match your records with bank statements and other documents. Double-check that your math and recorded income are correct, and confirm that what you’ve written down for debts matches up so you can get a clear idea about how your company is doing financially.

Finalize and Report

Depending on the nature and size of your business, finalizing your statements for reporting may involve getting them reviewed by external accountants to ensure everything is compliant with standards and regulations.

It’s always beneficial to consult with accountant to ensure everything is lined up efficiently. The CPAs at JTS Associates are here to help. Contact us at (516) 877-5900.