Business and Personal Finance: Prelude to Financial Statements

The End of Period Cleanup – Prelude to Financial Statements

Once you’re sure that your numbers are good, it’s time to create your financial statements for the period. You have to do this before you close out the books for the period, since that final step effectively erases your temporary accounts, all of which show up on at least one financial statement.

There are three major statements to prepare: a balance sheet, a statement of profit and loss, and a statement of cash flows. Each of these statements gives you part of your company’s financial picture, and the three together can show you how your business is doing overall. You can create these statements directly from the end columns on your working trial balance.

As you’ll learn in the next chapter, each statement has a standard format to follow, from the heading down to the bottom line. Once you have that for- mat set up, you can simply fill in the numbers and make sure they balance properly. In most accounting software programs, these reports will be generated automatically, and all you have to do is print them out and make sure they look right.

If you need these financial statements for someone outside your company, such as the bank, have your accountant prepare them, or at least look them over for you before you send them out. Outside parties often look for specific values and certain relationships among your accounts. Your accountant will be well versed in these requirements and can tell whether your numbers will make the grade. If they don’t, he can provide reasons and suggestions to help you explain any temporary shortfalls.

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