As of May 2020, Forbes reported that 14 retail stores and restaurant chains filed for bankruptcy or liquidation. While some businesses stop their operations for good, others make use of bankruptcy as an avenue to save their company financially and bring back to its former glory. Finances will always play a significant role in running a business. That is why it is crucial to keep track of your enterprise’s financial activities on a regular accounting cycle. As you consistently monitor your finances, you should also devise a business financial statement to keep a record of the cash that flows into and out of your corporation.
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What Is a Financial Statement?
The financial statement of a company is a document containing the records of its activities. It reports the financial performance of a business, which government agencies, accountants, and firms audit to ensure accuracy. A simple financial statement will also serve as a guide for investors and analysts to evaluate the company’s financial health and its capability to generate income. Moreover, a financial statement sample for a small business consists of the following elements: assets, liabilities, equity, revenues, and expenses.
How to Create a Financial Statement
Deciphering the content of financial statements in PDF and other statements of financial position can be challenging if you have no clear idea about the process of creating the document. That is why we have outlined a step-by-step guide to help you write a financial statement for your company. With this, you will have a full understanding of its components as well as its process.
1. Gather Financial Records
Note that a financial statement consists of various records—balance sheet, income statement sample, and cash flow statement. That is why you have to gather the necessary records first so that you will have complete figures to calculate later on. Moreover, having evidence of your financial activities also guarantees you that your report is accurate. Also, don’t forget to determine the specific accounting period your financial statement will cover.
2. Start with the Balance Sheet
The equation for a balance sheet is Total Assets = Liabilities + Shareholder’s Equity. Therefore, you have to determine your assets and liabilities. To come up with the shareholder’s equity, subtract the liabilities from the assets. You can also use a balance sheet template, so all you have to do is input the figures.
3. Write an Income Statement
The formula involved for an income statement is Net Income = Total Revenue – Total Expenses. You need to list down all your company’s source of income and indicate the specific amount on the document to come up with the figures. This section should include both operating and non-operating revenue. After this, calculate the total expenses, such as the cost of goods sold and the operating costs. Now that you have the sum of the revenue and expenses, you can already deduct the overall expenses from the total revenue.
4. Create the Cash Flow Statement
Lastly, you have to create a cash flow statement. For this process, begin with calculating your cash inflow or the actual finances your business receives from its primary operations, investments, and financing. Then, proceed to the computation of the cash outflow or the money your company spent on purchasing equipment, rent, payroll, debt, etc. After getting the total amount of each component, deduct your cash outflow from the cash inflow to determine the net increase (or decrease).
What are the five types of financial statements?
Aside from the income statement, balance sheet, and cash flow statement, there are two other types of financial statements. We refer to these as the statement of change in equity and the footnotes to financial statements.
What is the most important financial statement?
In accounting, most professionals and business owners consider the income statement as the most important financial statement. It is because this spreadsheet enables the viewers to determine the business’s ability to generate profit.
Who are the users of financial statements?
The government requires businesses to submit financial statements. Other than that, these accounting documents are also beneficial to the company’s management, investors, customers, employees, lenders, and suppliers.
As featured in an article from CNBC, over 7 million businesses might close their doors to the customers if the coronavirus pandemic would last longer. It may be challenging to manage your finances in times like these. However, you have to make sure that you still have the resources so you can start over again or continue what you’ve started when everything goes well. So, make sure to have a record of your financial activities by using one of the professionally written financial statements compiled in this article.
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