How to prepare a financial statement for your business

Preparing a financial statement for your business can be a daunting task. You may not even have considered this aspect to running a business when you first started out. Many of us fear numbers and the weight of the task can make us dread the time when quarterly or annual financial statements are due.

If you don’t have the knowledge or resources to prepare a financial statement for your business, you can always opt for outsourcing your finance work. Companies like FinAccDirect offer a range of services, including financial statement reporting and statutory reporting services. By opting for outsourced finance and accounting services, you can remove the burden of preparing statements off your shoulders.

While outsourcing your finance work has many other benefits, for instance, being able to hire a trusted business advisor from a company like FinAccDirect, preparing a financial statement for your business is not a task you should fear. The steps are quite simple and you can’t go wrong if you follow them carefully.

What will you need?

Preparing a financial statement cannot be done within a few minutes. You need to prepare necessary documents and data before you can get started. There are four accounting statements you will need in order to prepare the financial statement of your business. These are balance sheets, income statements, cash flow statements, and shareholders’ equity.

Once you how to prepare these four statements, you have nothing to worry about regarding the financial statement of your company. However, if you do not feel confident about it, you can always hire a company like FinAccDirect for their finance and accounting services.

Balance sheets

A balance sheet is also called a statement of financial position and there is one simple accounting equation to remember when preparing balance sheets. Assets = liabilities + owner’s equity is the basis to balance sheets, where the owner’s equity or net worth is found by calculating the difference between the assets and liabilities.

In order to prepare the balance sheets, you need to first make sure all adjusting entries are made in the general journal and then that all journal entries have been entered in the general ledger. Once the necessary entries are made, you can prepare your balance sheets.

Income statements

Next on the list are income statements or profit and loss statements. The income statement includes your income, expenses, and net income, and is the bottom line of the company. This will give you an idea of how the business fared in the given period and if you aren’t happy about the numbers, you can consult your trusted business advisor on how to improve them.

Cash flow statements

Despite turning a profit, your company may run into problems or difficulties if there isn’t adequate cash flow. This is why this particular statement is important. It divides the cash flow of your business into operating cash flows, investment cash flows, and financing cash flows.

By outsourcing your finance and accounting, you can avoid the hassle of preparing cash flow statements and a company like FinAccDirect can handle it for you, but if not, you will have to compare the financial data of two time periods and show changes in cash in accounts of revenue, expense, asset, liability, and equity.

Shareholders’ equity

The shareholders of a company are its owners and the shareholders’ equity statement looks at the overall figure used in the balance sheets. You may remember having to calculate owner’s equity in order to assess the assets of the company. In the shareholders’ equity statement, we look at details like dividends paid to shareholders as well.

Once these separate statements are prepared, you can take steps to prepare closing entries in order to get ready for the next accounting period. The steps you will need to take are closing the revenue books, closing the expense accounts, transferring income summary balance to a capital account, and closing the drawing account.

Now that you know how to prepare a financial statement for your business, you may wonder if there is a need to outsource your finance and accounting. What you need to keep in mind is that preparing a financial statement is only part of your responsibilities and an outsourcing company will also provide finance and accounting services like statutory reporting services and financial statement reporting. This is why many businesses opt to outsource their finance work to companies like FinAccDirect.