Useful Tips On The Preparation Of Financial Statements


Financial statements are documents that show how well businesses have done over a given time, normally per year. They also illustrate the amount of profits that the companies achieved. There are investors and regulators that make their decisions based on these documents even though some think that the so called small businesses do not have enough information that require preparation of such documents. When you start to prepare your financial statements, it is crucial to understand the forms that you have to complete.

How to use them

Most times these financial documents are done by your chartered accountant, bookkeeping services provider or in-house bookkeeper. But these are hired hands, why don’t you prepare your statements yourself? Wait a minute! Don’t even get them ready…learn how to use them per month. Getting the statements sounds like one is going to take them, in the same way, their trusted bookkeeping services provider does for them. No, one should them every month to get to know if their gross profit margin pricing formula is in line or not.

A business man who is profit-minded and ambitious should make use of these financial statements.Thepreparation of financial statements helps to calculate their gross profits, revenues, and forecast their expenses that relate to material and labor. They should also be used to calculate business inventory turns and to determine the value of working capital that is available plus much more.

One doesn’t need to be a Financial Expert

The main point is that one doesn’t need to be a financial expert to do all this. You may be wondering what you are supposed to do to learn these statements and eventually use them for your business. Simple; just look for someone that is ready to teach you and you will have your business thriving. Good preparation of financial statements is very important for your business well-being. In fact, you will know the status of your business every time you look at these documents and take immediate measures to counter any potential danger.

What it does

The same statements will effectively assist you to secure loans, attract investors and prepare your taxes. Remember that every time a business wants to borrow some finances from, say banks or any other financial institution, it must present its financial statements to be considered. Investors who wish to put their money in your field of business may also ask to see your performance, and this is why preparation of financial statements is encouraged especially in growing economies. In your preparation of financial statements, which include your income statement, cash flow statements, and balance sheet, there are some tips you require to follow.

Check Balance Sheet

Your balance sheet, prepared at the end of your trading period, shows a lot of crucial information concerning your business condition. The balance sheet shows your assets and liabilities break down, both fixed and current as well as your capital. Such information will help you know the value of your assets, what you to outsiders (liabilities) and the value of your investment. Therefore, you should always check to ensure that the values are correct.

Find Income Statement

A complete income statement is very important since it makes sure that the event of preparation of financial statements for your company is effective. This income statement has to include any revenues or sales in the given trading period, your operating costs, the cost of sales, gross profit, and net profit or loss. You can use the available income statement software to manage and follow these factors better.

Cash Flow Statement

As you prepare your financial statements, you can choose from indirect or direct reporting. The latter that is the most preferred method shows transactions that brought in (received) or withdrew (paid) money. The former method emphasizes on the changes in assets, and those liabilities linked with sales as well as expenses.