Preparing year-end reports ought to be the “crowning point” of every business’ financial year. With proper planning, solid accounting practices, and expert financial reporting assistance, the process should be readily embraced and not avoided. Indeed, if good financial reports are not prepared and reviewed regularly (not just at year-end), your business might be flying blind.
Why is it So Important to Prepare Financial Statements?
Even if you feel you have good knowledge about how your business is doing, you will need proof for government agencies, creditors, financial institutions, investors and shareholders. Financial reports, including the essential documentation provided by year-end reports leading to annual tax filings, are important for these reasons:
- Better Decision Making – Financial statements provide an accurate picture of how your business is performing so you can monitor its progress, fix weaknesses, leverage strengths and seize opportunities.
- Make On-Time Payments – The “scorecards” provided by financial statements assist each business in meeting its obligations in a timely fashion.
- Be Prepared for Tax Time – Financial statements will help the business keep its records organized and updated to avoid difficult last-minute scrambles at tax time.
- Catch Mistakes That Could Be Costly – Financial reports can help a business owner detect fraud, theft or illegal activities that could deeply damage a business.
What Year-End Reports Are Needed?
Financial reports essentially show the flows of money. The three primary financial reports are:
- The balance sheet;
- The profit and loss or income statement; and
- The cash flow statement.
These reports are prepared in a process called the “accounting cycle” which includes the following six steps:
- Recording all transactions and keeping good transaction records.
- Posting all transactions to a general ledger.
- Preparing a trial balance.
- Adjusting entries at the end of the period.
- Preparing an adjusted trial balance.
- Preparing financial statements.
The balance sheet provides information regarding a company’s assets, liabilities and shareholder’s equity.
The income statement reports how much revenue a company has earned over the designated period. It reflects the money flowing in and the costs and expenses flowing out, thus yielding a company’s net earnings or losses.
The cash flow statement provides a picture of the company’s flows of cash in and out, showing if your business has funds to pay bills and operate or invest.
Avoid These Financial Statement Mistakes
As financial reports are prepared, especially year-end reports, it pays to avoid these mistakes:
- Misclassifying or not reporting every expense accurately.
- Not capturing every dollar of revenue.
- Misclassifying assets and liabilities.
- Relying on an untrained staff or having inadequate support.
Seek Expert Accounting and Tax Assistance