A financial statement is typically prepared by an accountant. But if you are starting a small business, you might find it practical to prepare it on your own. Because you still don’t have data that’s altogether too complicated to work on, preparing this document by yourself will be relatively manageable. A financial statement is a general term for three types of documents: balance sheet, income statement, and cash flow. In this article, we will discuss how each of these documents is prepared. Please read on.
Balance Sheet
Understand what a balance sheet is. The balance sheet basically involves the business’ assets and liabilities. You have to deduct the liabilities from the assets to identify the business’ net worth. In accounting, the net worth is used to determine if the business is in good condition.
List down your assets. The assets are the things your company owns. This includes the equipment and machines, supplies, vehicles, and accounts receivable. You have to determine the present value of these assets and sum them all up.
List down your liabilities. These are what your company owes. Loans, accounts payable, utilities, and taxes all are liabilities. Again, write them all down and their individual values. Tally them up.
Determine your net worth. Simply subtract the liabilities from the assets. If you get a positive figure, your net worth is very good. But if the figure you derive is negative, your net worth is less than ideal.
Income Statement
Know what an income statement is. An income statement is the document that shows how profitable your business is within a given period. Profitability is determined by your net income. If the net income is enough to run your business, your business is generally doing well.
Tally up your expenses. All your expenses for a certain period should be listed down and summed up. These include office supplies, rent, salary, and utilities. Make sure to include miscellaneous expenses as well.
Determine your revenue. Revenue is the total amount of money your business earned in a given period. In merchandise-oriented business, this is called sales. In service-oriented business, revenue is called fees.
Calculate your net income. This is basically done by deducting the expenses from the revenue. A positive net income shows profitability. The net income can be used in monitoring the condition of your business. If your net income is consistently good, it is safe to assume your business is profitable.
Cash Flow
Know what cash flow means. In simple terms, a cash flow statement is the document that determines the movement of cash in your business. It is usually the document that creditors look into.
Determine your net income. The net income is derived if you subtract the expenses from the revenue. It is, as discussed, stated in the income statement.
Compute your expenses. All the expenses that affect the cash flow should be tallied up. These include tax, employee salaries, and insurance.
Determine your net balance. The net balance is derived if you subtract the expenses from the net income. You should have a positive net balance to operate the business. Otherwise, you need to make financial adjustments or make loans.
Keep in mind that making a financial statement is a long and meticulous procedure. You have to look at the tiniest details to make an accurate document. If this is your first time doing this, consider asking for help from an expert.
