Preparing Financial Statements – The Statement of Cash Flows Statements of cash flows are the most complicated reports you’ll prepare. It’s much easier when you have accounting software or an accountant to create the report for you. On the plus side, you can tell whether you’ve done it right based on the ending cash balance, … Read more
Preparing Financial Statements – The Balance Sheet A balance sheet provides a financial snapshot of your business at a frozen point in time. Also known as the statement of financial position, this report will give you a clear picture of where your business stands. The balance sheet contains current pictures of your assets, liabilities, and … Read more
Preparing Financial Statements – The Statement of Profit and Loss The statement of profit and loss is by far the favorite among business owners; after all, this is the one that shows the profits. This statement can show you much more than the bottom line, though. It can let you know if you’ve been setting … Read more
Preparing Financial Statements – How These Statements Interconnect Even though they each contain very distinct information, the three main financial statements are completely connected. In fact, you can’t produce a balance sheet without first creating a statement of profit and loss, and you can’t prepare a statement of cash flows without having already produced the … Read more
Preparing Financial Statements – Three Major Financial Statements n accounting, there are dozens upon dozens of reports you can create to learn specific information. To get a clear, big-picture view of your company’s financial position, though, you need three very special reports. These three reports are the balance sheet, the statement of profit and loss, … Read more
The End of Period Cleanup – Closing the Books At the end of every official accounting period (as determined by you), you will close out the books so you can start the new period with a clean slate. Every temporary account will be closed out into the equity account(s). The income statement accounts, both revenues … Read more
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 … Read more
The End of Period Cleanup – Accounting for Accruals When you make an adjusting entry to account for something that hasn’t happened yet, but will, that entry is called an accrual. Accruals, as you might guess, are critical parts of accrual basis accounting, the system that strives to record transactions in the period they most … Read more
The End of Period Cleanup – Making Adjusting Entries Sometimes transactions take place in one period but impact another. Other times, you know a transaction will be finalized in the future, but at least some part of it has ties to the current period. These two situations are the main reason for adjusting entries, which … Read more
The End of Period Cleanup – The Working Trial Balance A working trial balance is like a supercharged version of the regular report. It starts with the three-and-a-half standard columns that you find on your standard trial balance: account number (the half), account name, debit balance, credit balance. Then it adds on a couple of … Read more
