Financial Statements Preparation; But How?
Posted by: Vaibhav Devaansh | Posted on: February 22nd, 2016
Financial statements are important for making competitive business decisions. It’s not just about the bank statement, it’s more about self-evaluation. The statements give you a clear idea of your business performance and it shows you where you stand. Not for anyone else but it’s important for you to know where you are heading to. Enlisted steps help you prepare financial statements (the exact order may differ from company to company):
- Match the receiving log with accounts payable to make sure that all supplier invoices were received, and in time. You can add the expenses for the invoices that have not been received.
- Match the shipping log to accounts receivable to confirm that all customer invoices have been hand out. Issue any invoices that have not yet been prepared.
- Accumulate an expense for any wages earned but not yet paid as of the end of the reporting period.
- Calculate depreciation and remuneration expense for all fixed assets in the accounting records.
- Conduct an ending physical inventory count, or use another method to estimate the ending inventory balance. Use this information to derive the cost of goods sold, and record the amount in the accounting records.
- Conduct bank reconciliation, and put journal entries to record all adjustments required to match the accounting records to the bank statement.
- Post all subsidiary ledger balances to the general ledger.
- Evaluate the balance sheet accounts, and use journal entries to adjust account balances to match the supporting detail.
- Print a preliminary form of the financial statements and review them for blunders. There will likely be quite a lot of errors, so to avoid create journal entries to correct them, and print the financial statements again.
- Accumulate an income tax expense, based on the corrected income statement.
- Close by all subsidiary ledgers for the period, and open them for the following reporting period.
- Print a final version of the financial statements.
- Write footnotes that go along with unexplained points in the financial statements.
- Issue a cover letter that clarifies key points in the financial statements.
- Distribute the financial statements.
Once the financial statements are prepared, you can add the financial statements to the accounting worksheet and close the books for the year by recording closing entries.