Sunday, October 2, 2011

How To Prepare A Financial Statement

If you’re anything like me, you might start to get a little nervous when it comes to reporting income, assets and liabilities. It can be a daunting task, and if you’re doing it for the first time then a long one too. However, it can actually be quite easy to learn how to prepare a financial statement.

Businesses create their statements to have a good view as to what kind of financial place they are in at any given time. If you don’t know where to look, software companies sell software that comes already prepared. If you are more comfortable around the concept of financial statements, you can create your own.

Let’s start our list:

1. Current Assets – An asset in this sense consists of cash, accounts receivable, inventory and any other assets that will be expected to be converted into cash within the next twelve months. Cash is going to be any money you have in the bank and any money market accounts. All the money that is due to the business from clients or customers will make up your accounts receivable. Inventory is any product you sell, obviously.

2. The Sum – Complete the sum by adding up and totaling all of the current assets and values that you have listed.

3. Fixed Assets – A fixed asset is something like a building, equipment, vehicles and land. Patents, trademarks and copyrights also fall into this category. Usually, fixed assets are the book value of any of these things lessened by any depreciation since the asset was acquired by you.

4. The Sum – Complete the sum again by adding the total of your fixed assets.

5. Complete Sum – Add the two numbers that you get from your current assets and values and your fixed assets and you’ll have your complete assets.

6. Liabilities – A liability is any account payable, note payable and debt that has been incurred and due in the next year or less. Money due to vendors for products and services on any credit account will make up your accounts payable. Interest or amounts due on notes at maturity make up your notes payable.

7. The Sum – Total your liabilities by adding the numbers together.

8. Long Term Debts – A long-term debt is any debt exceeding one year. They are the principal and interest amounts on any debt securities. These include bonds, notes and debentures.

9. The Sum – Total your long-term debts by adding the numbers together here.

10. Owners’ Equity Items – This is your common stock and any retained earnings. While stock consists of ownership in one company or another, retained earnings consist of any earnings in the previous and current periods not given to shareholders.

11. The Sum – Add your equity items together to get the total sum of all owners’ equity items.

12. The Complete Sum – Add the sums you’ve gotten from all your liabilities, long term debts, and owners’ equity items. This number is your complete liabilities value.

And there you have it. This is how you prepare a financial statement. It isn’t as bad and scary as you might think it is. Just follow the list above with a calculator on hand and you’ll be fine.

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