10 Things You Need To Know About Financial Statement Preparation

Preparing a financial statement is not an easy feat and is often made more complex by the constant change in financial reporting and accounting rules. There are specific standards and formats in which you must report financial information. This blog will explain what you need to know about financial statement preparation.

Income Statement

The income statement reveals how much revenue the company has earned during a specific period.

Sales. This includes any sales tax and other fees associated with these transactions and any discounts offered to customers who buy in bulk or pay before receiving their order.
Cost of goods sold (COGS). The amount you spent on the materials needed to create those products or services sold during the reporting period (i.e., if you're making sweaters, this would include what it costs for wool, needles, thread, etc.).

Balance Sheet

The balance sheet is one of the leading financial statements. It is a snapshot of assets, liabilities, and equity at a specific time.

Cash Flow Statement

The cash flow statement is the most important financial report a company produces.

Statement Of Retained Earnings

It is a financial statement that reports the earnings that have been accumulated and not distributed to shareholders.

Capital Expenditure and Depreciation

Capital expenditure is an investment in your business, such as expanding the office space or purchasing new equipment. Depreciation is a non-cash expense that all companies experience. Still, for tax purposes, you can only deduct depreciation from your income if you use the item for your business—you cannot deduct it from capital expenditure.

The critical difference between these two items is that capital expenditure is a cash outflow (you are spending money). At the same time, depreciation is a non-cash outflow (you are not spending money).

Accounts Payable and Prepaid Expenses

Accounts payable and prepaid expenses are on the balance sheet as current liabilities. Your company pays accounts payable (or bills) to its suppliers for supplies, inventory, or services provided by the supplier to your company. Pre-paid expenses represent prepayments made on a fixed asset purchase that you can use over time instead of paying cash (e.g., rent).

Non-Current Assets and Liabilities

Non-current assets are two types of assets and liabilities:

Assets - Assets are resources or things owned by a business. They can be sold or used in a business operation, but they don't have an expected life within 12 months.
Liabilities - Liabilities are obligations incurred by a company during its operations. They generally come in two forms: long-term debts (debts with maturities over 12 months) or loans payable on demand (short-term debts).

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