Prepare your financial report
A financial report is a document that reflects the financial position of a company or an organization. It includes the balance sheet, statement of income and cash flow. The financial report is often reviewed and analyzed by business managers, boards of directors, investors, financial analysts and government agencies.
Therefore, such reports should be prepared and circulated in a timely, accurate and clear manner.
Step 1: Get ready to write the report
* Define a time frame
Before you begin, you will need to determine the time frame that your financial report will cover. Most financial reports are prepared quarterly and annually, although some companies prepare their financial reports on a monthly basis.
To determine the time frame during which your financial report should be prepared, check the legal documents of your organization, such as the memorandum of association, founding charter, or incorporation contract. Such documents may often describe how to prepare a financial report.
Ask your organization’s chief executive about the usual approach to prepare the financial report.
If you are the current CEO of the organization, estimate how long it would take to prepare a financial report and set an appropriate date.
* Make sure all accounts are recorded
Make sure that all accounts receivable and payable have already been processed and that the bank reconciliation is complete and that all inventory purchases and product sales have been recorded.
You will also need to consider any liabilities that are yet to be reported. For instance, has the company received any services that have not yet been included in the invoices? Are employees owed wages that have not yet been paid? These items have to be accounted for as due liabilities and recorded in the financial statements.
* Collect any missing information
If you find any missing information during your audit, track any relevant documents to confirm that your financial report is complete and correct.
Step 2: Prepare a balance sheet
- Set up a balance sheet page
A balance sheet shows the assets of a company (what it owns), its obligations (what it owes) and equity accounts, such as common stock and additional capital paid for a specific date.
- Label the first page of your financial report as “Balance Sheet.” Include the name of the institution and the actual date of the balance sheet. The balance sheet items are presented on a given day of the year. For example, the budget may be submitted on December 31.
- Choose a correct format for your budget
Most balance sheets are displayed on the left side while liabilities or stocks are placed on the left side. Other formats may include assets at the top of the page and liabilities or stocks below.
- Record and include your assets
Add the “Assets” heading in the first section of your balance sheet and list the different assets held by the company.
Start with current assets, such as cash and any items that will be converted into notes within one year of the balance sheet date. At the end of the section, include the total value of the current assets
List non-current assets thereafter. Non-current assets are identified as any assets that are not in cash and will not be converted to cash in the short term. For example, property, equipment and receivable are considered non-current assets.
Finally, add up the total value under “Total Assets”.
- Include liabilities
The next section of the balance sheet shows the liabilities and equity. This section of the budget should be named “Liabilities and equity”
Start by listing your current liabilities. The latter are obligations due within a year, which usually include accounts payable, accrued obligations, short-term mortgage and other loan payments, and then include the total value of current liabilities.
Subsequently, include your long-term obligations. These include obligations that will not be settled within one year, such as long-term debt and payment notes. Then add up the total value of the current liabilities
Finally, add up the total value of current and long-term liabilities under total liabilities.
- List all equity sources
The equity section in the balance sheet follows the liability section and shows the remaining capital if the company sells all its assets and pays its obligations.
Under this section, list all equity accounts, such as common stock, treasury stock, and unallocated earnings. Once all equity accounts have been listed, add them up under the caption “Total equity”.
- Add liabilities to equity
Add the total figure for the “Total Liabilities” and “Total Equity” sections under “Total Liabilities and Equity”.
- Review the budget
The value of the Total Assets must be equal to the value of the Total Liabilities and Equity. If so, your budget is ready and you can start preparing your income statement.
Shareholders’ equity should be equal to the assets minus liabilities. As we have explained before, this is the remaining amount of case in the case of all assets are sold and all liabilities are settled.
Step 3: Preparing the income statement
Preparing the income statement page
The income statement reveals how much money a company earns and spends over a period of time.
Labeled as the income statement, this page includes the name of the institution and the time period to be covered by the income statement.
For instance, the income statement is often prepared for the period beginning on or after 1 January to 31 December of a given year.
Note that it is possible to prepare a financial report on a quarterly or monthly basis while your income statement is prepared on an annual business. Your annual report is easier to understand, but this is not absolutely necessary.
- List your income sources
Include different sources of income and earned amounts
Make sure to list each type of revenue separately and adjust it as necessary to accommodate any sales discounts or rebates.
Group income sources in a way that makes sense to the company. Revenue may be calculated by region, management team, or by product.
When all sources of income are included, add them up and report them under “total revenue”.
- Submit a report on the cost of goods sold
This is the total cost to develop or manufacture your product or service during the reporting period.
To calculate the cost of goods, you should add raw material expenses, direct labor expenses, factory expenses and marketing or delivery expenses.
Subtract the cost of goods sold from total revenue and label the value as “gross profit”
- Record operating expenses
Operating expenses include all expenses necessary to conduct your business. This includes public expenditure and administrative expenses such as salaries, rent, services and property value. This also includes advertising expenses and R & D expenditures.
You may need to record these costs separately so that your readers can get a comprehensive idea of where money is spent.
Subtract that cost from the total profit and label this figure as “profit before tax”.
- Include undistributed profits
“Undistributed profits” refer to the total net income and loss since inception.
The balance of retained earnings is shown in gross form as a result of adding undistributed profits from the beginning of the year to net income or loss for the current year.
Step 4: Preparing the cash flow statement
- Prepare the cash flow page
This statement tracks the sources and uses of cash expenditures by the company.
Label this page as “Cash Flow Statement” and include the name of the institution and the time period covered by the statement.
The cash flow statement covers a defined time period. For instance, the period from 1 January to 31 December, just like the income statement.
- Prepare the operating activities section
The cash flow statement begins with a section on “cash flows from operating activities”. This section matches the income statement you just prepared.
Include the organization’s operating activities in a list. This may include elements such as cash receipts from sales and cash for inventory.
Calculate the total value of these items and classify it as “Net Cash from Operating Activities”.
- Create an Investment Activities section
Add a section called “Cash Flow from Investment Activities”. This section corresponds to the balance sheet already prepared.
This section relates to cash payments or cash received from investments in property and equipment or investments in collateral such as shares and bonds.
Include the total sum under “Net cash from investing activities”.
- Include financing activities
The last section of this page should be labeled as “Cash flows from financing activities”. This section relates to the equity share of the balance sheet.
This section should outline the inflows and outflows of guarantees and debt issued by the institution.
Add the total amount under “net cash from financing activities”
- Summarize sections
Summarize the three sections of the cash flow statement and classify the figure as “cash increase or decrease” during the specified period.
You can add the increase or decrease in case to the cash balance at the beginning of the period. The sum of these figures should be equal to the cash balance shown in the balance sheet.
- Add any important notes or lists
- Financial reports often include a section called “Notes to Financial Statements,” which includes extensive information about the company. It would be very useful to take into account the additional information on the finances of the organization and to list them in the Notes and then add this information to the report.
- These notes may contain information about the company’s history, future plans or information related to the industrial sectors. This give you a chance to explain what the report means and what it reveals to investors. This can help potential investors see the company from your perspective.
- Notes also include an explanation of the Company’s accounting practices and procedures and interpretations of the balance sheet.
- This section includes details of the company’s tax status, pension plans and stock options.