A well-prepared financial statement provides a clear picture of a company’s financial health. It helps businesses track income, expenses, and overall profitability while ensuring compliance with accounting standards. Errors in financial statements can lead to miscalculations, regulatory issues, and poor decision-making. To maintain accuracy and reliability, many businesses seek professional guidance from an account firm near me to handle their financial reporting.
Gather all financial records
Before preparing a financial statement, it is essential to collect all necessary financial documents, including invoices, receipts, bank statements, payroll records, and tax filings. Proper documentation ensures that all transactions are accurately recorded and categorised.
Choose the right accounting method
Businesses typically use either the cash basis or accrual basis accounting method. Cash basis records transactions when money is received or spent, while accrual accounting records them when they occur, regardless of cash flow. Selecting the appropriate method ensures consistency and compliance with financial reporting standards.
Prepare the income statement
The income statement summarises a company’s revenues, expenses, and profits over a specific period. To create an accurate income statement:
- List all sources of revenue.
- Deduct operating expenses, such as salaries, rent, and utilities.
- Subtract taxes and other deductions to determine net profit or loss.
Compile the Balance Sheet
The balance sheet provides a snapshot of a company’s financial position by listing assets, liabilities, and equity. It follows the equation: Assets = Liabilities + Equity.
- Assets include cash, inventory, and accounts receivable.
- Liabilities cover loans, accounts payable and outstanding debts.
- Equity represents the owner’s stake in the business.
Generate the cash flow statement
This statement tracks the movement of cash within the business, helping assess liquidity and financial stability. It consists of three sections:
- Operating activities – cash generated from business operations.
- Investing activities – money spent on or earned from investments.
- Financing activities – funds from loans, investors, or repayments.
After compiling financial statements, it is important to check for errors, inconsistencies, or missing data. Cross-referencing with financial records and seeking professional review ensures accuracy and compliance with regulations.
An accurate financial statement is essential for evaluating a business’s performance and making informed decisions. Organising financial records, using the correct accounting method, and reviewing reports thoroughly help maintain precision. Businesses can improve accuracy by consulting an account firm for professional assistance.