Financial Statement: Create Financial Statement Step by Step

Step 1. Gather all the relevant financial data

Before you do anything, you need to collect all the data relevant to financial data, including sale invoices, receipts, bank statement, and expense reports. This step provides you the foundation of the entire process. The compiled data gives a vivid image of the financial standing of your business, and through it, you will discover spots that require cutting costs so you are well- positioned to make the most informed decisions.

This can be daunting - at least for everyone: no one enjoys sifting through a pile of receipts or manually keying information from expense reports, but it does't have to be that way if you use the proper tools. We recommend using a software product that lets you scan receipts in real time, thus automatically capturing the details of transactions and thereby avoiding errors such as underreporting or overreporting.

Step 2. Categorize and organize the data

Once you have prepared the data for financing, it is time for sorting and filing. You should categorize data into revenue, expenses, assets, and liabilities.

Well-arranged datasets will make drafting easier; then you are able to meet reporting deadlines, which again translates to passing regulatory requirements. It means you can talk their language which accounts for accounting standards, you keep stakeholders' trust, and you avoid legal problems.

To be very prepared for this step, choose a pre-accounting software which will collect your financial data and organize them in real time. Instead of waiting until the last minute to sort and file every expense you get, the software will automatically scan or upload them for you at the instance when they received.

Step 3. Draft preliminary financial statements

With the collected data, it times to start drafting the preliminary financial statements. This involves three types of statements; an income statement, a balance sheet and a cash flow statement.

How to draft an income statement

An income statement should be like your business report card. It reports whether your business has been profitable or not within a certain period of time. Here is the easiest way to prepare one:

A). Write down all your company's revenues:This can include when you sell your goods or services, investing money, or any other way your company generates cash. In total, this is called Revenue.

B). Estimate the Cost of Goods Sold:These are the costs of the money you spent to manufacture the products or services sold.

C). Subtract this amount from revenue:This gives you Gross Profit.

D). List all regular costs:These could include items such as rent, utility bills, salaries for staff, and advertising.

E). Subtract these costs from gross profit:That gives you Operating Income.

F). Account for other costs and gains:These can include items such as taxes, interest, and other unusual income or expenses

G). Net income calculation:This is profit after the company has incurred all expenses and costs. It only indicates if the company is profitable or not.

How to draft a balance sheet

A cash flow statement is very similar to your company's bank statement. It simply outlines how cash comes in and goes out over a certain period. Here is how to draft one:

1) You start with net income:This is on the income statement.

2) Then you need to adjust the non-cash items as well as the changes in working capital:accounts like accounts payable, and amounts owed to the company which are known as accounts receivable.

3) Cash from investment:This is money invested or generated from the purchase and sale of investments such as equipment, property, or stocks.

4) Cash from financing:This is cash generated from activities like issuing stocks or loan settlements.

5) Add it all together:This gives you the net change in cash. Add this to the starting cash to get the ending cash balance.