How to Make the financial statements?
- 3 months ago
Creating financial statements involves summarizing a company's financial activities and performance over a specific period. The three main types of financial statements are the income statement, balance sheet, and cash flow statement. Here's a basic overview of how to prepare each:
Income Statement (Profit and Loss Statement):
Start with the revenue: list all sales or income earned during the period.
Subtract the cost of goods sold (COGS) to find the gross profit.
Deduct operating expenses (like salaries, rent, utilities) from the gross profit to find the operating income.
Add or subtract non-operating items like interest income/expense, gains/losses on investments, etc.
The final figure is the net income (or net loss) for the period.
Balance Sheet:
List all assets owned by the company, such as cash, inventory, property, equipment, etc.
List all liabilities, such as loans, accounts payable, accrued expenses, etc.
Calculate the owner's equity by subtracting total liabilities from total assets.
The balance sheet must obey the equation: Assets = Liabilities + Owner's Equity.
Cash Flow Statement:
Start with the beginning cash balance.
Record all cash inflows from operating activities (e.g., sales, interest received).
Record all cash outflows for operating activities (e.g., payments to suppliers, salaries).
Record cash flows from investing activities (e.g., purchase/sale of assets, investments).
Record cash flows from financing activities (e.g., issuance/repayment of debt, issuance/buyback of shares).
Calculate the net change in cash for the period and add it to the beginning cash balance to get the ending cash balance.
Remember, financial statements should be prepared according to generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS) depending on the jurisdiction and the reporting requirements of the company. It's often a good idea to consult with a qualified accountant or financial professional to ensure accuracy and compliance.
Income Statement (Profit and Loss Statement):
Start with the revenue: list all sales or income earned during the period.
Subtract the cost of goods sold (COGS) to find the gross profit.
Deduct operating expenses (like salaries, rent, utilities) from the gross profit to find the operating income.
Add or subtract non-operating items like interest income/expense, gains/losses on investments, etc.
The final figure is the net income (or net loss) for the period.
Balance Sheet:
List all assets owned by the company, such as cash, inventory, property, equipment, etc.
List all liabilities, such as loans, accounts payable, accrued expenses, etc.
Calculate the owner's equity by subtracting total liabilities from total assets.
The balance sheet must obey the equation: Assets = Liabilities + Owner's Equity.
Cash Flow Statement:
Start with the beginning cash balance.
Record all cash inflows from operating activities (e.g., sales, interest received).
Record all cash outflows for operating activities (e.g., payments to suppliers, salaries).
Record cash flows from investing activities (e.g., purchase/sale of assets, investments).
Record cash flows from financing activities (e.g., issuance/repayment of debt, issuance/buyback of shares).
Calculate the net change in cash for the period and add it to the beginning cash balance to get the ending cash balance.
Remember, financial statements should be prepared according to generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS) depending on the jurisdiction and the reporting requirements of the company. It's often a good idea to consult with a qualified accountant or financial professional to ensure accuracy and compliance.