A financial statement is one of several different accounting documents that provides specific information about one area of a business and its performance. The three main financial statements for a small business are the balance sheet, cash flow statement and income statement. Publicly traded companies should include a change-in-equity statement as part of the financial statements they file each year.
Financial statements are used to help small-business owners operate their companies throughout the year, and to compile a more comprehensive presentation of the overall standing of the company, at least once per year. This type of document is used as a formal record presented to owners, partners, investors, shareholders or other stakeholders with a need for this information.
Depending on your company’s legal reporting requirements, your financial statement might need to be completed by an independent auditor and contain specific documents. Understanding how to organize your financial report presentation will help make it easier for stakeholders to find what they need.
Presenting a balance sheet
A balance sheet is a listing of your assets and liabilities, showing your net worth on a given date. This gives stakeholders the bottom-line condition and value of your business. You might wish to add a note if you have intangible assets that you can’t include on the balance sheet.
For example, if you own a business that customers know and trust, you might be able to sell it for more if you include your name, logo, URL, email addresses, toll-free phone number and other branding assets in the sale to the buyer. Even though these might have a value, a small-business owner can’t put “goodwill” on its balance sheet.
Presenting your income statement
An income statement is also commonly known as a profit and loss statement, or P&L report. This document shows your revenues, expenses, profits and loss for a specific time period. Note that “revenues” refers to all of the money you take in, not just from sales. This could include money you receive from patents, royalties, investment income or a legal award. “Income” refers to your pre-tax profit, not just money you take in. Use a professional bookkeeper or accountant to prepare this document in accordance with professional standard practices. When presenting this document, you can include a note or notes explaining any specific areas of the statement.
Presenting your cash flow statement
Unlike a budget, which might show average monthly or quarterly income and expenses, a cash flow statement shows exactly when money comes in and goes out. For example, you might sell an order of widgets for $100,000 on May 15th, recording it as revenue on that day, but if you give your customer 60-day payment terms, you won’t receive the cash until July 15th. A cash flow statement shows that you received your cash on July 15th.
Instead of showing an average $200 per month insurance payment, like a budget does, a cash flow statement will show four premium payments of $600 in January, April, July and October, if you pay your premiums quarterly.
Presenting your change-in-equity statement
Unlike balance sheets, cash flow statements and income statements, which should be updated on a regular basis to help guide a company’s performance, a statement of change in equity is usually created just once each year.
This document shows the equity of a business’s owners at a beginning date, and then adds or subtracts any dividends, profits or other payments, showing the owner’s increase or decrease in equity on the ending date for the document.
Presenting all the documents
If you are presenting all of these documents in a year-end report, include a cover page with the name of the preparer and the dates it covers. Add a simple table-of-contents page. Place the statements after that. You can add your footnotes for each statement on a page after the statement, or put all of your footnotes on one page at the end of the document.
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Author: Steve Milano
Article Title: Proper way to present a financial statement
Date: May 2021