4 Things You Need to Know About Financial Statements Generated by Professional Bookkeepers
Last Updated April 14, 2023
A financial statement is a piece of writing that reveals:
- Where do you get your money
- Where your funds are spent
- What resources do you now have available to you
Financial statements provide a (relatively) simple summary of your accounting information. They are produced frequently based on your needs. That’s either monthly or quarterly for the majority of small business owners.
Depending on the kind of business you run, there are a few different types of financial statements you might utilize. The balance sheet and the profit and loss statement will be the two primary statements that we will concentrate on.
The third kind of financial statement to take into account isn’t discussed here: the statement of cash flows. This is especially helpful if your company employs accrual accounting rather than cash basis accounting. Take a time to learn about the distinctions between cash basis and accrual accounting if you’re unsure of which you employ.
The Origin of Financial Statements Financial statements are produced in one of three ways:
Financial statements will be automatically generated for you if you use accounting software. Remember that if your accounting is precise and current, your statements will be trustworthy.
Numerous bookkeepers, including those who provide online accounting services like MyCountSolutions, will provide financial statements for you and ensure that your financial records are accurate and up to date.
By an accountant
You can send an accountant your bookkeeping data, and they will produce financial statements for you. Unless you’re presenting the statements to investors or shareholders, this isn’t technically necessary. This can be done more affordably by a bookkeeper.
Fresh entrepreneurs often don’t have the right idea regarding the financial statement being churned out by professional bookkeepers. Unfortunately, textbook knowledge is not of much help in this regard. Professional bookkeepers produce several financial statements when they take care of the finances of a company.
Here, we will try to share some basic details regarding the financial statements that you will come across as the work of professional bookkeeping. This information can come in handy while analyzing financial statements and then basing decisions on them.
1) Each Financial Statement Entails Different Detail
Financial statements are not uniform documents with a universal format. There are balance sheets, cash flow statements, and so on. All of these financial statements outline a different story and highlight different aspects of the financial side of your business. For example, a balance sheet outlines the financial position of a business. On the other hand, cash flow statements give a detailed picture of how cash is being moved in terms of financing, investing, and operating activities.
In short, every financial report has its own significance and professional bookkeepers furnish each of them by factoring in its implications.
2) Financial Reports Are Decked With Jargon
There is a reason why one needs to hire a full-time accountant or third-party professional bookkeeping services to deal with financial statements. There are many types of financial statements and all of them are filled with technical language only professional bookkeepers are able to comprehend. So, never leave the interpretation, furnishing, and compilation of financial statements to people who only have a superficial idea of them.
3) Financial Statements Don’t Account for Everything
Financial statements can undoubtedly provide you with a clear picture of how your business is operating. However, they don’t cover each and every aspect of your business performance. For instance, financial statements crafted by professional bookkeepers can’t shed light on the quality of work. Nor do they entail information regarding marketing forces, competitions, and the overall economy. In other words, one should not make financial statements the sole foundation of their business decisions.
4) Financial Reports Are Standardized
Financial statements furnished by professional bookkeepers are usually standardized through Generally Accepted Accounting Principles (GAAP). Financial Accounting Standards Board is responsible for managing and updating GAAP standards and professional bookkeeping services to keep up with those updates and changes.
How to Read the Financial Statements
The bank statement
The balance sheet, which provides a current picture of your company, reveals just how much cash you have on hand. Although it can be done on a monthly basis, MyCountSolutions only creates balance sheets for the current period.
Looking at the Balance Sheet
Three sections make up your balance sheet:
Assets. You have to work with every penny you have. Cash and Accounts Receivable are divided up. Unpaid invoices that are in your account receivable are those that you anticipate being paid. Cash is the total amount of money you have earned so far this year.
Liabilities. You owe money. That typically refers to loans, credit card payments, or other indebtedness. This is referred to as Accounts Payable in bookkeeping.
Equity. Funds allocated to your business. This may also refer to retained earnings. This may be your own shares or the money of investors in some businesses. It might also be money you’ve borrowed against. Your net income constitutes your equity in MyCountSolutions.
Remembering this equation will help you to understand how the three parts of the balance sheet interact with one another:
Equity – liability = assets
Making use of the Balance Sheet
Your balance sheet’s data is useful since it:
- Check out your financial situation and follow it over time.
- Monitor the debts you have paid off.
- In charge of a loan or investors’ funds
- Utilizing the data from the balance sheets you created over the financial year, file your taxes.
The Summary of Profit and Loss
The balance sheet reveals how much money you have available for use and how much debt you have, but it does not explain how you got there.
The profit and loss statement plays a role in this. It reveals how much money you’ve made and spent throughout the course of the year.
There are two parts to your profit and loss statement: income (billed) and fewer expenses.
This section’s first subsection, sales, lists all the funds for which you have sent invoices.
Cost of goods sold (COGS), the second section, provides a cost breakdown for the production of your product. For instance, the price of the shirts and the printing would go under the COGS category if you made personalized t-shirts for a customer. Before calculating your overall income, this sum is deducted from your sales (Billed).
All of the non-COGS expenses you’ve racked up during the course of operating your firm are included in Less Expenses.
Use of the Profit and Loss Statement
Your profit and loss statement contains information that:
- Analyze how expenses affect your firm and make cost savings.
- Establish the viability of your company to attract funding or investment.
- Keep track of the long-term effects of your profitability on business decisions.
- View your deductible spending from above.
- Utilizing the data from the balance sheets you produced throughout the financial year, file your taxes.
Financial statements provide you with all the information you need to pay taxes for your independent contractor business, but they cannot support your claims in the event of an audit. Make sure you are aware of which tax records you must maintain as you prepare for tax season.
MY Count Solutions provide small and medium-scale ventures with professional bookkeeping and tax preparation services. The financial statements furnished by expert bookkeepers at the company can also give your business a better sense of direction.
Dallas Bookkeeping Services – My Count Solutions