To determine the period of time your financial report should cover, review the governing documents of your organization, such as the bylaws, corporate charter or articles of incorporation. These documents may describe how often the financial report should be prepared. Ask an executive at your organization how frequently reports are expected to be prepared. If you are the executive of your own organization, consider when the financial report would be most useful to you and select that as your financial report date.
For example, make sure all accounts payable and receivable have been processed, verify that the bank reconciliation is complete, and ascertain whether all inventory purchases and product sales have been recorded. You’ll also need to consider any liabilities that may be unrecorded as of the financial report date. For example, has the company received any services that have not been invoiced? Are employees owed wages that have not yet been paid? These items represent accrued liabilities and must be recorded in the financial statements.
The balance sheet items are reported as of a specific day of the year. For example, the balance may be prepared as of December 31.
Start with current assets, such as cash and any items that will be converted to cash within one year of the balance sheet date. At the end of this section, include a subtotal of the current assets. [2] X Research source Next, list the non-current assets. Non-current assets are defined as any assets that are not in the form of cash and will not be converted to cash any time soon. For example, property, equipment and notes receivable are non-current assets. Include a subtotal of the non-current assets. Finally, sum the current and non-current subtotals and label this line “Total Assets. ”
Begin by listing current liabilities. These are liabilities that are due within one year, and typically include accounts payable, accrued liabilities and the short-term portion of mortgages and other loan payments. Include a subtotal of the current liabilities. [3] X Research source Next, include the long-term liabilities. These are any liabilities that will not be settled within one year, such as long-term debt and notes payable. Include a subtotal of long-term liabilities. Sum the current and non-current subtotals and label this line “Total Liabilities. ”
Here, make a list of all the equity accounts, such as common stock, treasury stock and retained earnings. Once all the equity accounts are listed, sum them and add the caption “Total Equity. ”
Shareholder’s equity should correspond to a company’s assets minus its liabilities. As mentioned previously, this is the money that would be left over if all assets were sold and all liabilities paid. Hence, liabilities plus equity should be equal to assets. If the balance sheet does not balance, double check your work. You may have omitted or miscategorized one of your accounts. Double check each column individually and make sure everything is included that ought to be. You may have missed a valuable asset, or a significant liability.
For example, an income statement is often drafted for the period from January 1 to December 31 of a particular year. Note that it is possible to prepare a financial report for a single quarter or month, while your income statement might be for a full year. Your financial report will be easier for readers to understand if they are for the same period, but this isn’t strictly necessary.
Be sure to report each type of revenue separately, adjusted as necessary for any sales discounts or return allowances, for example: “Sales, $10,000” and “Service Income, $5,000. ” Organize the sources of revenue in a way that is meaningful to the company. Some options may be revenue by geographical region, by management team or by specific product. When all revenue sources have been included, sum them and report the total as “Total Revenue. ”
To calculate a cost of goods, you should add the direct materials, direct labor, factory costs and shipping or delivery expenses. [7] X Research source Subtract cost of goods sold from total revenue and title this number “Gross Profit. ”[8] X Trustworthy Source U. S. Securities and Exchange Commission Independent U. S. government agency responsible for regulating the securities industry, which includes stocks and options exchanges Go to source
Subtract the sum of these costs from your gross profit and title this number “Profit Before Taxes. ”
Adding retained earnings from the beginning of the year to the current year’s net income or loss results in the total retained earnings balance.
Similar to the income statement, the statement of cash flows covers a period of time, such as January 1 to December 31.
List the operating activities of the organization. This may include items such as cash receipts from sales and cash paid for inventory. Subtotal these items and label the resulting total “Net Cash Provided by Operating Activities. ”
This section relates to cash paid or received from investments in property and equipment, or investments in securities, such as stocks and bonds. [10] X Trustworthy Source U. S. Securities and Exchange Commission Independent U. S. government agency responsible for regulating the securities industry, which includes stocks and options exchanges Go to source Add a subtotal called “Net Cash Provided by Investing Activities. ”
This section should shows inflows and outflows from securities and debt issued by the organization. [11] X Trustworthy Source U. S. Securities and Exchange Commission Independent U. S. government agency responsible for regulating the securities industry, which includes stocks and options exchanges Go to source Add a subtotal called “Net Cash Provided by Financing Activities. ”
You can add the increase or decrease in cash to the cash balance at the beginning of the period. The sum of these two numbers should equal the cash balance shown on your balance sheet.
The notes might contain information about company history, future plans or industry information. This is your opportunity to explain to investors what the report means and what it shows or doesn’t show. It can help potential investors see the company through your eyes. [12] X Trustworthy Source U. S. Securities and Exchange Commission Independent U. S. government agency responsible for regulating the securities industry, which includes stocks and options exchanges Go to source Typically, the notes also include an explanation of accounting practices and procedures used by the company and explanations of balance sheet captions. This section also often includes details about the company’s tax situation, pension plans, and stock options.
