What is a Financial Statement?
A financial statement is a formal written report of the company's financial activities. These are often used by accountants and government agencies to ensure their financial performance. Financial statements have different forms depending on its purpose. It can be a personal, non-profit, business, and capability financial statement.
How to Create a Financial Statement
The company's financial analysts and investors depend on the financial statement when they are analyzing the performance of the company. Based on the sample statement, they make assumptions and plans for the future of the company. That is why it is important to have a well-written financial report because it holds the company's future. The steps below will help you in writing your financial written report.
1. Balance Sheet
The balance sheet is important because it holds the data of the balance of the company. It is where the assets and liabilities were recorded. The basic accounting equation of the balance sheet is Total Assets = Liabilities + Shareholder's Equity. Before starting your financial statement, you need to check the previous balance sheet so that you will be able to trace the past records of the company's financial activity. In constructing the balance sheet, you need to use the accounting equation so that you will come up with the correct result.
Assets are anything that your company own, it can be the cash in your hand or the things that your company owned. It is usually divided into two, the current and fixed assets. The current assets are the cash you have that could be liquidated. It can also be the money that people owed to your company, your savings, your inventory and the pre-payments or deposits that you have made like an insurance for the coming years. Fixed assets are your properties, plants, and equipment. They are the tangible things that your company owned. There are also intangible things that can be considered as fixed assets like patents, brand recognition, and copyrights. You can calculate all your assets based on industry convention.
Liabilities are the money and things that your company owes or has paid to other people or companies. This is the company's debt. Just like the assets, liabilities are also divided into two, the current and long term categories. Current liabilities are the things you owe like credit cards, goods, and supplies. This also includes the salary you paid to your employees and the tax. Long term liabilities are your company's loans that are payable over a time period of longer than one year. You can estimate your liabilities by listing all of it then adding the current and new ones.
4. Shareholder's Equity
You can estimate the shareholder's equity by subtracting what is owed from the assets. If the results are a positive amount, it means that your company was able to finance on its own rather than relying on debts. Place a separate section for the shareholder's equity in your balance sheet so that your investors will know their shared stocks and fundings.
5. Income Statement
Place all the contents of your income statement including the net sales, gross profit, operating expenses, and non-operating expenses. The net sales will be placed at the top. Net sales are the gross sales minus the discounts or allowance of lost and damaged goods. Next is the gross profit that will subtract from the net sales. Last will be operating and non-operating sales. Operating sales are the cost of selling the products, the employees salary, and administrative costs. Non-operating sales are those taxes, interest, amortization, and depreciation. After you are done listing all these sections you can now write your income statement.
6. Cash Flows
The cash flows are the actual money in your hand. To complete the cash flows, you need to calculate cash flows from operating activities. After calculating, you now need to figure out items that bring in or take out cash through operations. Then after that, you need to determine how the investment affects your overall cash flows. The second to the last step is to see how much was used to finance your business and loans. You may need to conduct a cash flow analysis in this one. Then lastly, you can finally lay your statement of cash flows.