Financial Statement Creation

In every business, financial statements and financial statement creation are important in making it successful. A good financial statement will allow you time, cut down on extra unneeded paperwork, and it will be much easier when tax season approaches. Financial statement creation can also be helpful when more than one business partner is involved so all financial items are in one place for everyone to see.


1. What is a Financial Statement?

In business you will have many aspects to cover to not only begin a business but to keep one running successfully. A financial statement is one of those business aspects you should have for your business not only to protect your business but to keep you on top of what your business is doing. A financial business statement is a formal record of your business' financial activities.

Financial statements give you an overview of your long and short-term conditions in profit and loss, accessible tax information, and the current status of your company. With a large corporation, there may be many complex and extensive forms which are important for all who are involved in the business itself. It is an easy form to quickly assess where funds are being spent, where funds can be cut, or where funds can be extended. These financial statements can be used with management discussion and analysis, with each item noted for income, cash flow, and a balance sheet.

Financial statements can be very important in the growth and upkeep of a business. Notes in a financial statement can also be very important when sorting out the finer details of your business. Therefore a financial statement can be one of the greatest assets to a business in its success and a great help for business planning.

2. Why Do I need a Financial Statement?

When you start in a business, you try to make sure all surfaces are covered. One is to make sure that you know where all your funding is going and what it is being spent on. This is important in a business so you know that your money is not being wasted but being used efficiently. It is an easy way to pinpoint where all the funds of a business are being used and where the funds are going.

It is important when setting up your financial statement that it is easy for you to understand and use. This way when you have to go over your statements for your business, you can place where your funds are going, what you have spent your funds on, and the benefits of the funds you have placed in different accounts. This will make it so that you can run your business efficiently and effectively.
Your knowledge of what your financial statements show is also important for your business. Your financial statement can be compared to the main vein of your business in the facts that this is your basis of where all your finances go. So you can see that your financial statement is the life force of your business. The importance of your financial statement will help guide you in how successfully your business can develop.

3. What Are the Different Forms of Financial Statements?

When looking at the different forms of financial statements, there are four basic types. Balance sheets, income statements, statements of retained earnings, and statements of cash flow; each of these are different forms of statements. A balance sheet can be referred to as a statement of financial position or condition. This is a report on a company's liabilities, net equity, or assets and can be seen at any point in time.

With an income statement, this is considered a profit or loss statement. This will let the company know of the operations of the company over a period of time. With a statement of retained earnings, the company has an explanation of retained earnings over a reported period. The statement of cash flow will allow the company to see its cash flow activities, especially that of the operating, financing, and investing of activities.

These four different statements are all important in a business to see where it is in the business world, but will also allow the company to see how well their business is doing. This also allows all who are involved in the business to see where funds are going and to see whether the funds are helping and improving or if they are not essential to the company.

4. Is a Financial Statement Important in My Company?

When you think of your financial statements and you go over them, they become important in the fact that the value of those invested in the company are equal to the balance sheet of the value of the company. This should allow you to see the increase or decrease of revenue. There are certain areas on your financial statement sheet where you can see if there is an overflow of finances on your income statement.

Because there are different statements of inflow and outflow, you can see where your money is coming in and to where it is going out. It also allows for ease when you have other businesses begin to join you because all information is together on these financial statements. This will cause less confusion when a new company may join you or have an interest in your business.

If you have another business that joins you, even though it is considered a liability, this will increase your assets but does reduce your net equity. This will be shown on the balance sheet of your financial statement. The biggest reason to have a good financial statement is so that you can keep track of your business and see where your finances are going. This is so that you know that the money you are spending in your business is working for you and is in the best interest of your company.

5. Financial Statement Uses

Because a business has so many aspects which concern its growth, you cannot always keep track of all your streams of money coming in or going out. The financial statement is for you to be able to see your financial history and allow you to set goals as to where you would like your company to grow. A financial statement is good for you to see your income, where your finances are going, where you may be losing money, where the largest or weakest point of income is, and to pinpoint where finances are being spent.

It is an easy way to keep track of all the points of financial matters concerning your business. You can go over your financial statements and see where each stream of income is going, which will help you make your business decisions and decide where you wish to expand your company. It will also make it easier to manage the checks and balances of your financial bottom line. Your accountant, if you have one, will be able to quickly check your financial statement and help you with your taxes.

When you have your taxes done and you do not have an accountant, a financial statement will make it easier for your finances, both profit and loss, to be accounted for. When all your financial records are in one place, it should increase your profit line, allow others to easily assess your company's financial situation, and during tax season will allow your tax preparer or the IRS to easily help you prepare for tax season.

6. Who Will Be Involved in the Financial Statement?

There are several people who could be involved in your financial statement. Internally there are owners, managers, employees and other parties who are directly connected to the company. External uses may include potential investors, banks, government agencies and other parties who may be outside the business but need the financial information of the business for various reasons.

For internal users, the first people involved in a financial statement are the owners and managers. Financial statements can become invaluable to make important business decisions, for shareholders in the Annual report, and to present for tax purposes. Employees may also need these financial statements to help make a collective bargaining agreement (CBA), especially in the case of a labor union. This will help the individuals discuss issues of compensation, promotions, and rankings with their company. As for the external users who look at financial statements, one of the largest advantages is that a prospective investor can assess the advantages or disadvantages of investing in the business they are looking at. Often a financial analysis is used, and a professional financial analyst is brought in to help the company that is looking to invest to make a wise business choice. Their analysis is largely based off the financial statement. .

Financial institutions will also look at a financial statement. Often the financial institutions will be able to decide if it is in their best interest to grant extended debt securities, finance expansion of the company in question, more working capital, and other significant expenditures. When government entities are involved, also known as tax authorities, these statements are needed to see the accuracy of taxes, ascertain properties, and other duties which are declared and paid from the company. One other group that may wish to see the financial statements of a company are media and general public for various reasons, some reasons may be how the company is doing to help them decide if they wish to invest in the company.

7. Financial Statements and Auditing or Legal Issues

Financial statements are used for investments, financing and tax purposes. Often an independent accountant is used for financial statements when a company needs to bring one in. When and if a company is audited, independent accountants or auditing firms will usually be brought in. This audit will allow results to be shown in the annual report of the financial statement of the business. This provides valuable information during the audit report of fairness and accuracy of the financial statements for all involved in the business.

Legally there has been a great deal of debate over who the auditor is liable to. Audits are usually addressed for the current shareholders, and very often it is commonly thought that the legal duty is to them, however the common law in place may determine otherwise. This legality is determined by the state or country in which the audit is done. To make sure that the funds are used correctly in a company, it is the concern of the accuracy of financial statements, not only to the owners and business partners, to make sure that funds are not being misappropriated or misused. This is important to a company and allows for legal action if the funds are not used correctly.

8. What Should I Put in My Financial Statement?

When a company begins, their financial statement may be much like a "marketing brochure;" this is done to attract new investors. Often there are eye- pleasing graphics and photos. It may also include a letter from the chief executive to allow others to see how management is doing and will normally highlight a company's financial status. An income statement will show profit and loss, showing all finances in one place.

There should be an annual income statement, possibly a quarterly statement, revenues, cost of goods sold, returns and allowances, gross profit or loss, expenses, net profit or loss before taxes, and net profit or loss. With all these aspects being on paper, it allows each company to see their financial assets and losses at a glance. It is also valuable for maintaining all expenses and budgets.

9. How Do I Make a Financial Statement?

For a financial statement to be built, all aspects of the paragraphs afore are included. Revenue will let you know the total amount of sales you have made during the period of the time frame documented. When using a cost of goods sold statement, it will show you where your money is going when purchasing products or the retail value of the material purchased for manufacturing. Normally the Cost of Goods Sold is determined by taking the total retail value of the inventory from the beginning of the period and taking away, or subtracting, the value of the inventory at the end of the period, then adding your cost for purchasing materials.

With Returns and Allowances, all items that are returned under money-back guarantees or because the customer was dissatisfied are sometimes included in Cost of Goods Sold when returns are small. When the revenues are divided by Gross Profits, this is called gross margin. When concerning Gross Profits this is where the Cost of Goods Sold is subtracted from Revenues. This can be called an income statement or a profit and loss statement. This key tool is important for any business, but is invaluable for a small business because it allows you to see the full financial picture at one glance.

The Expense Report should include all direct operating expenses which can include: advertising, commissions, salaries, rent, utilities, office supplies, and all other expenses that are not listed. It should also include all indirect expenses that could include: training, attorney fees, research and development, cost of loans, training, or other items not listed. It is best to ask your tax preparer what can be included in this statement. Your Net Profit before Taxes is done by subtracting your Expenses from Gross Profit. Net Profit is determined by subtracting your net Profit before Taxes. Both net profit before taxes and net profit will allow you to see how your company is doing during the period of the time that the statements are prepared for.

The best way to learn how to make your financial statements is from other businesses or a tax preparer, and there are also programs out there that can help you with constructing this invaluable paperwork needed to make sure your business is as successful as you would like it to be. Use the one that best suits you and is easiest for you to work with in your situation of business and where your business is at the current time.
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