How Do I Create a Financial Statement?
Financial statements come in many shapes and sizes. The process of constructing financial statements is an art and a science geared towards communicating information clearly and accurately, and also achieving a specific result such as informing stakeholders about your financial situation or convincing bankers to give you a loan. Although work on financial statements such as balance sheet preparation involves sitting down and assembling data into specific formats, the financial statement process actually starts with your day to day bookkeeping. If you have been keeping current and complete records over time, you'll create statements by organizing and pulling together information you already have. If your books are incomplete or out of date, start the process by updating your books to make them current.
Creating a Balance Sheet
A balance sheet is a snapshot of your financial situation at a specific moment in time. It lists everything you own and everything you owe as of the day it is created, and then calculates the difference between these figures to show your net worth. To create a balance sheet, start by listing your assets on the left side of the page. Include the cash you have on hand and in the bank, your accounts receivable or sums that your customers owe to you, the value of the equipment you own, the value of the inventory you have on hand and any other assets that add real financial worth to your business. On the right side of the page, list your liabilities, or amounts you owe. Include short term debt such as credit card balances and long term debt such as term bank loans. Also include accounts payable, or sums you owe to your suppliers for unpaid shipments you have received.
Total your assets and then your liabilities, and subtract your liabilities from your assets. The amount left over is known as owner's equity, and it also belongs on the liability side of your balance sheet. By including owner's equity in the liability column, you can make your balance sheet balance, that is, you assets will equal your liabilities, at least on paper.
Creating an Income Statement
An income statement compares your revenue and expenditures during a specific period. To create an income statement, first list all of your types of earnings during the time the statement will cover. Sources of earnings include wholesale and retail sales, or income from renting out business property. Total your earnings by adding up all of these sources of income. Next total up all of your expenditures by summarizing your purchases in each category where your company spends money, such as materials, payroll, advertising, utilities, equipment and rent on business property. Find your bottom line, or net income, by subtracting your total expenditures from your total income.
Financial Statement Software
You don't need any special software to create financial statements. Any standard bookkeeping program such as Quickbooks or Xero will be set up to easily create financial statements once you've made all of your income and expenditure entries for the period your financial statements will cover. You can easily create a QuickBooks balance sheet if all of the data your need has already been entered into your system. Select "Reports" from the main menu, then select "Balance Sheet" from the drop down menu. You'll have a choice between "Balance Sheet Standard" and "Balance Sheet Detail." The former summarizes your balance sheet information in a few key entries such as the total amounts in your bank account and total inventory. The latter lists each bank account and inventory item separately. Choose the option that gives you the information you need. If you want a quick overview, then "Standard" will be most relevant. If you want a breakdown with pinpointed insights, then the "Detail" option is best.
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