How to Prepare Financial Statements for Small Businesses
Preparing financial statements for small businesses can be a challenge, especially if the firm doesn't use an accounting software and is disorganized. The basic financial statements of a small business are usually the balance sheet and income statement, although there could be special financial reporting for banks and investors. The Internal Revenue Service also requires financial reports for tax purposes at year-end.
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Instructions
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Obtain a copy of Schedule C that is filed with Form 1040. This form is for small businesses and gives you a good idea of what an income statement contains and the types of expenses that are reported separately. Use this form as a template for you to start putting numbers on. Start with Part 1 Income and then move to the expenses on Part 2 starting with Line 8 -- Advertising. Once the form is complete, you basically have an income statement that can be used for many purposes -- cash-tax basis can be accepted by many banks and investors when dealing with small businesses with no inventory.
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Organize receipts. This is especially important if the business has no formal accounting system. File the paperwork first by calendar year and then by type. Revenues are separated from expenses. Your sales receipts would be filed by day or week, depending on volume. Expenses are filed in accordance with the information required on the Schedule C and 1040 tax return. If you need to know how much you spent in office supplies or furniture, file these receipts separately. The next step is to add up the items in the files to get totals by type, such as total advertisement paid.
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Review the business checkbook and statements. If receipts are not available, bank records can give you valuable information. For instance, the money deposited could be your revenues; checks and ATM withdrawals may be expenses. Many small businesses are on the cash basis of accounting, and cash transactions can give you information of actual income and expenses. If you know that you spend a set amount in rent, you can easily identify those in the statements and estimate the others. You can also request copies of checks, which will allow you to prepare a detailed listing of expenses.
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Tips & Warnings
Buy an accounting software package for your small business. This can help you immensely in daily activities and in compiling financial reports.
