Financial Statement Preparation & Analysis
In order to run a business properly – and profitably – regular and accurate financial statements must be created and analyzed. Legal requirements aside, financial statement preparation and analysis provides valuable information for management and other parties involved with or interested in any business entity. Further, without CPA-prepared financial statements, small businesses would struggle to survive.
At Chandler & Knowles, financial statement preparation and analysis is an important feature of our business accounting services as it helps our clients assess the financial health of their business, identify trends and fluctuations, and evaluate year-to-year growth. Among those who have an interest in financial statements are business owners, managers, creditors, investors, lenders, suppliers, the public, and government agencies.
Basics of CPA prepared financial statements
There are four principle types of financial statements, each having information unique to itself. They are also combined to generate a broader view that is greater than the sum of the parts. Preparing financial statements begins with gathering data, starting with any previous statements that may exist. From here, the information is used to create:
- Financial Position Statement (Balance Sheet) – This contains details of assets, liabilities, and equity in order to present your financial position at any given time so that you, and others requiring the financial statement, can evaluate the soundness of your financial position.
- Income Statement (Profit and Loss Statement) – Using specifics of income and expenses, the statement of income is a report on the net profit and loss performance of a business over a particular time period.
- Cash Flow Statement – This is the movement of a business’s cash and balances over time and includes operational, investing, and financing activities to provide information on liquidity and solvency, and to provide the basis for projections of future cash in order to make sound decisions.
- Changes in Equity Statement (Statement of Retained Earnings) – This document details changes in equity over a given period. Net profit or loss, gains or losses recognized in equity, share capital issued and repaid, and dividend payments are all components (where applicable) of this statement.
Once these statements are created and distributed to designated parties, including governing agencies, financial statement analysis can then be conducted.
The Need for CPA Financial Statements
The data generated by financial statements is of little or any value if it is not scrupulously analyzed to identify strengths and weaknesses of a business and then used to help it grow. Financial statement analysis precedes the management and planning processes. By extension, without accurate financial statement and an understanding of the details they contain, good planning and management are not possible.
There are two types of financial statement analysis that are used to accomplish this goal:
- Horizontal and vertical analysis – Horizontal analysis compares information over reporting periods; vertical analysis is the proportional analysis of a financial statement, listing each item as a percentage of another.
- Financial ratio analysis – This process determines if performance expectations are being met; ratio calculations that are created and analyzed include liquidity, activity, profitability, and leverage ratios, among others.
Utilizing these processes forms a complete picture of your company’s efficiency, financial security and, subsequently, quality for improved business management.
At Chandler & Knowles, we are experts in providing all of your business accounting needs. Through financial statement preparation and analysis we can help create the financial stability your company needs to help it grow. Give us a call today at 817-406-3827 or fill out our online form.
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