Steps in financial reporting
A financial report, or financial statement, is a formal record of a company’s financial transactions. A company’s earnings and losses as well as the value of its assets and stocks are reported in the statement. The report is comprised of several subtopics that describe and define a company’s financial health or weakness.
Don’t expect to find friendly hand holding and helpful explanations in financial statements you read. Realise that drafting a financial report yourself takes a lot of accounting know-how of business and finance basic accounting terminology and measurement methods. But there’s a way to get started.
STEP1: The balance sheet
Begin preparing your financial report by balancing your company’s financial holdings of what the company currently owns its assets. To the amount of debt owed liabilities and the profits it has made that will be paid out to shareholders the equity.
- Place the assets on the left side of the page or on the top, present liabilities and shareholders’ ownership in the company on the right side or the bottom of the page.
STEP2: The income statement
Also known as the profit and loss statement, which shows how much money your company has earned and the amount of money it has lost during a year.
- The top line of this statement shows total sales or gross revenue. The lines that follow deduct the
- Gross discounts and returns of products
- Cost to sale products
- Operating expenses
- Salaries and marketing expenses
- Depreciation of items used to produce products such as tools and machinery.
- Then add income from interest earned on funds. If your company is paying interest on a loan, deduct that amount. Next, deduct income tax.
- The remaining amount is your bottom line or the actual profits and losses during the specific earnings period.
STEP3: The shareholders’ equity
Calculate shareholders’ earnings per share (EPS). This section of your financial report is the statement of changes in equity.
- To determine the EPS, divide total net income from the income statement by the number of shares currently owned by investors.
STEP4: The cash flow statement
Finish the report with an accounting of the amount of cash the company has brought in or spent.
- When evaluating the circulation of cash in your company include an analysis of all operating, investing and financing activities. You can do so by analysing the figures noted in the assets, liabilities, equity, and income portions of the report.