An accountant is usually the one who prepares a financial statement. However, if you are beginning a small firm, you may discover that preparing it on your own is more feasible. Because you don’t have any data that’s too difficult to deal with, generating this document on your own will be very simple. A financial statement refers to three different documents: a balance sheet, an income statement, and a cash flow statement. We’ll go over how each of these documents is made in this article. Please continue reading.
- Know what a balance sheet is and how to read one. The assets and liabilities of a company are represented on the balance sheet. To calculate the net worth of a company, subtract the liabilities from the assets. The net worth is used in accounting to determine whether or not a business is in excellent shape.
- Make a list of your assets. Your company’s assets are the stuff it owns. Equipment and machineries, supplies, transportation, and accounts receivable are all included. You must calculate the present worth of all of these assets and add them up.
- Make a list of your liabilities. This is what your business owes. Liabilities include loans, accounts payable, utilities, and taxes. Make a list of all of them, as well as their unique values. Add them all up.
- Calculate your net worth. Subtract the obligations from the assets to arrive at a net worth. Your net worth is really good if you get a positive number. If the result is negative, though, your net worth is less than ideal.
Profit and Loss Statement
- Understand the meaning of an income statement. An income statement is a financial statement that demonstrates how profitable your company is over a specific time period. Your net income determines your profitability. Your firm is generally performing well if your net income is sufficient to run it.
- Make a list of all of your expenses. All of your spending for a certain time period should be reported and totaled. Office supplies, rent, salaries, and utilities are among them. Don’t forget to account for miscellaneous costs.
- Calculate your earnings. The total amount of money earned by your company in a given period is known as revenue. This is referred to as sales in a merchandise-oriented firm. Fees are the term for revenue in a service-oriented firm.
- Make a net income calculation. This is accomplished by subtracting expenses from revenue. Profitability is demonstrated by a positive net income. The net income can be used to track the health of your company. It’s safe to believe your business is lucrative if your net income is continuously high.
Flow of Cash
- Understand the concept of cash flow. In simple terms, a cash flow statement is a document that shows how much money is moving in and out of your company. It is usually the document examined by creditors.
- Calculate your net income. When you deduct the expenses from the revenue, you get the net income. It is stated in the income statement, as previously indicated.
Calculate your costs. All expenses that have an impact on cash flow should be totaled. Taxes, staff pay, and insurance are among them.
- Calculate your net worth. When you deduct the expenses from the net income, you get the net balance. To run a firm, you must have a positive net balance. You’ll have to make financial adjustments or take out loans if you don’t.
Remember that preparing a financial statement is a time-consuming and careful process. To create an authentic paper, you must pay attention to the tiniest elements. If this is your first time, consider seeking assistance from a professional.