The thing you don’t track can’t be measured, especially when it comes to business finances. And, if you have no idea about the financial health of your business, then you won’t be able to improve it. This is where financial statements come to play their role. With the help of financial statements, you can examine how you can use your resources and how you can manage cash flow. If you don’t know how to prepare these financial statements, then you can take help from the bookkeepers of Melbourne. They can help you better assess the performance of your business, make the right decisions, and reduce financial risks. In today’s blog, we’ll discuss how a bookkeeper can help prepare financial statements for you.
Importance of Financial Statements in Business
A financial statement is an essential document that needs to be prepared to predict future earnings and expenses. It is useful in helping business owners related to certain investments. There are three types of financial statements, such as profit and loss statements, balance sheets and cash flow statements. These statements are important when attracting investors, filing taxes, taking a loan and making important business decisions. Here is how a bookkeeper will prepare financial statements for you. There are various bookkeepers in Melbourne, if you don’t have a bookkeeper, then you can hire the best one.
A balance sheet represents the value of liabilities and assets for a given time period. A bookkeeper is responsible for preparing the balance sheet monthly, quarterly or annually based on the business’s requirements and its size.
How to prepare a balance sheet?
To prepare this document, a bookkeeper needs to have details of transactions, such as bills and invoices, and these come under assets, liabilities, and equity. The assets are further categorised into current and non-current assets on the balance sheet. Similarly, liabilities are also classified into current liabilities, which need to be paid in the same year, and non-current liabilities need to be paid over the years.
As a business owner, you can use this document to examine the entity’s net worth and capital requirements. Bookkeeper Melbourne uses this sheet to calculate the financial ratios required to check the financial status of the business.
With the help of a profit and loss or income statement, you can check the details of expenses and earnings for a given period. Usually, bookkeepers prepare this document monthly, quarterly, or annually to determine the business performance. Basically, this document includes earnings, spending, net income, operating income, gross profit, costs of goods sold, etc.
How to prepare an income statement?
The bookkeeper will prepare an income statement by calculating the sum of the revenue of the business and the cost of goods sold, which will include money used in producing and selling the products. They exclude the cost of goods sold from the sum of revenue to check the gross profit. After that, it is required to check the total operating expenses, and operating expenses are excluded from the gross profit to get the total income. The next step is the calculation of possible business and payroll taxes and interest on the debts. Then, taxes and interest are excluded from the total revenue so you can get the net income of the business. These financial statements help tax agent Melbourne to prepare and file business taxes.
Cash Flow Statement
As the name implies, the cash flow statement gives the details of the inflow and outflow of cash for a given time period. Through a cash flow statement, you will have an idea of the ending balance amount that helps you analyse the financial condition of your business to make informed decisions.
How to prepare a cash flow statement?
First of all, the bookkeeper will check the starting balance or current cash from the income statement. The next step is that bookkeepers for small businesses check the cash generated by an investment, business operation, and financing activities. When the cash generated from different activities has been calculated, the bookkeeper will check the ending cash balance at the end of the reporting time period. The cash flow statement will inform you about cash earned and spent by the business.
Every business needs to prepare financial statements because these statements can help businesses to know their financial condition, and they also help during the tax season. For this task, you can hire a reliable bookkeeper, and you can also contact a Reliable Bookkeeping Services provider.