Quite a bit goes into the preparation of financial statements; however, understanding these statements is necessary for any small business to succeed. These statements can be used for a variety of different things besides just doing your taxes and need to be done in order for you to know the true value of your business. The problem is that in most cases, small businesses do not have the time to do all the necessary paperwork to stay on top of their financial statements; this is why they often choose an accounting service.
If you do wish to do your own financial statement, then you should learn the basics and then stay on top of the information or it will be difficult when tax time rolls around to have the proper information on hand.
The first step in preparing your financial statement is to start a balance sheet. The balance sheet will include your assets, liabilities, and net worth. The problem is that these figures often changed on a daily basis. The bottom line of the balance sheet should show that your assets are equal to your liabilities and your net worth combined.
Your assets are all things of value that the company owns or is due the company which includes accounts receivable, inventory, notes receivable, and cash. Fixed assets are things such as all of the furnishings, the building, land, and all equipment. Intangible items are also considered assets including things such as market research, patents, and goodwill.
Liabilities and net worth include such things as your creditors and should be listed by priority. Liabilities are such things as accounts payable, notes payable, accrued expenses, and long term debt. Other liabilities include notes payable to owners, shareholders, and officers, and contingent liabilities.
Your income statement will provide all income and expense accounts over a specific amount of time. Your financial statement will show the amount of money your business will make after all the expenses. The only problem is that this statement will not actually help you learn if you are having problems within your business as it never reveals any hidden problems that might be present such as insufficient cash flow.
Most businesses will provide all their paperwork to an accounting service to help evaluate their net worth as well as find any underlying problems. The reason most companies hire an accountant for preparation of financial statements in Calgary is that they want to ensure that everything is correct and if there are problems, they can be found before the company is in trouble. When small businesses try to run their business and also do all the bookkeeping and accounting they are actually neglecting their business. Handing off the accounting and bookkeeping to a professional gives you the time to devote to your customers or clients so your business will succeed.