In business, financial statements are a fact of life — but just how much information should they include? These statements record a business's financial situation at a given point in time and provide useful information to investors and lenders. And when they include the right information, they also provide valuable information for business decisions.
Here's how to create detailed financial statements that will help you forecast and move toward your goals.
What to Include in Your Balance Sheet
The balance sheet — or statement of financial position — summarizes at a given point in time what a business owns, what it owes and, if it's a corporation, the shareholders' equity. It includes detailed information and estimates about what various assets are worth, including real estate, inventory and equipment. It also includes information on liabilities as of a particular date — the loans, mortgages and other debts owed by a business.
To create a balance sheet as part of your financial statement, pull information from your credit statements, real estate records and purchase orders and invoices. Then calculate depreciation and interest on the relevant assets and liabilities.
Comparing balance sheets for your company over months or years can show patterns and help you forecast earnings and anticipate cash flow changes as you pay off debt.
What to Include in Your Income Statement
A business income statement summarizes the net income or loss for a business over a specified period. Gathering information from sales records and expense slips, it details the revenues, gains, expenses and losses arising during that time. While you don't need to list individual expenses and sales on an income statement, you should add them up and include the total of each of your different sales and expense categories.
Reviewing income statements can help you see if you're hitting your revenue and budgeting goals for the relevant time periods.
What to Include in Your Cash Flow Statement
A cash flow statement presents a summary of a business's cash receipts and payments in relation to its operating, investment and financial activities over a specified time period. Include summaries of cash sales and purchases of goods or services, interest and investment income and expenses, plus any cash flows having to do with paying dividends or other transactions involving shareholders.
Carry out a comparative analysis of cash flow statements from different time frames to help you predict your financial future with cash flow forecasting.
Use Detailed Financial Statements for Setting Objectives, Progress Reports and Forecasting
Creating detailed financial statements helps business leaders find and analyze the information needed to meet financial goals, objectives and milestones. If you operate in an agile business environment, it also allows you to shift strategies at key moments throughout the year based on sales, productivity and cash flow.
Before making any changes to your current financial statement templates, review your annual goals and discuss potential changes with the individuals responsible for goal-setting in your business. Too much information makes financial statements difficult to read and uncover data, while too little information makes them useless for financial planning. Yet once you know what's required, you'll be better able to determine just how detailed financial statements for your organization should be.
Lastly, don't forget the experts. If you're unsure, reach out to a financial advisor or CPA who can help.
This article provides general information, and should not be construed as specific legal, HR, financial, insurance, tax or accounting advice. As with all matters of a legal or human resources nature, you should consult with your own legal counsel and human resources professionals. ADP shall not be liable for any direct, indirect, special, consequential, incidental, punitive or exemplary damages in connection with the use by you or anyone of the information provided herein.
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