Preparing financial statements comes down to aggregating certain accounting information into a set of financials. These statements then get distributed to lenders, management, investors, and creditors, who can then evaluate liquidity, performance, and cash flow.
Here is the step-by-step guide for adequately preparing a financial statement.
Receipt of Supplier Invoices and Issuance of Customer Invoices
It compares the receiving log to the accounts payable ledger, all of which are meant to ensure that the supplier invoices have been correctly received. For any invoices that have not been received, accrue the expense.
Then, compare shipping logs to your accounts receivable. This will help ensure that any invoices have been issued; any invoices that haven’t been prepared can also be given.
Wages and Depreciation
The next step is to accrue an expense for any wages earned but has not yet been paid for that specific reporting period. There is also the need to calculate amortization and depreciation for any fixed assets that may be on the record.
Valuing Inventory
There is a need to conduct what is known as the ending physical inventory count for businesses that sell a product. If not, then use an alternative method to provide an estimate for the ending inventory balance.
Use that information to determine the costs of the goods sold, and then record that amount in your accounting records.
Reconciling Bank Accounts and Posting Balances
A bank reconciliation should be conducted, and journal entries created to record any adjustments that have been made. Then, post the ledger balances to the general ledger.
Reviewing Financials
Now comes time to review accounts, including the balance sheet and the financials. Print out a preliminary financial statement to look for errors. Take the income tax expense into account, and then it is time to print and issue the final financial report. Prepare a cover letter that explains the most crucial points and put them into packets.