As a small business owner, understanding the role of financial statements and their significance is crucial. These statements provide insights into your company’s financial health, guide decision-making, and ensure compliance with legal and tax requirements. In this article, we’ll explore the essential accounting services related to financial statements that your bookkeeper or accountant should offer.
1. Types of Financial Statements
Financial statements are essential documents that summarise your business’s financial performance and position. The primary types of financial statements include:
a. Income Statement (Profit and Loss Statement)
The income statement provides a snapshot of your company’s revenues, expenses, and net income over a specific period (usually a month, quarter, or year). It helps you assess profitability and identify areas for improvement.
b. Balance Sheet (Statement of Financial Position)
The balance sheet outlines your company’s assets, liabilities, and equity at a specific point in time. It reflects your business’s financial position and helps you understand its solvency and liquidity.
c. Cash Flow Statement
The cash flow statement tracks the movement of cash in and out of your business. It highlights operating, investing, and financing activities, ensuring you manage cash effectively.
2. Requirements of Fiscal Statements
Small businesses must prepare accurate and complete financial statements. These statements serve various purposes:
a. Internal Decision-Making
Financial statements guide your business decisions. They help you allocate resources, set budgets, and plan for growth.
b. External Stakeholders
Investors, lenders, and potential partners rely on financial statements to assess your business’s financial health. Transparent and well-prepared statements enhance credibility.
c. Legal Compliance
Complying with legal requirements is essential. Financial statements are necessary for tax filings, regulatory compliance, and business licenses.
3. Required (Legal & Tax Submissions) Financial Statements
Depending on your business structure and size, you’ll need to submit specific financial statements:
a. Annual Financial Statements
Every year, small businesses must prepare and submit annual financial statements. These include the income statement, balance sheet, and cash flow statement. Accurate reporting ensures compliance with tax laws.
b. Tax Returns
Financial statements play a crucial role in preparing accurate tax returns. Your accountant will use them to calculate taxable income, deductions, and credits.
c. Industry-Specific Requirements
Certain industries have additional reporting requirements. For instance, publicly traded companies must follow specific guidelines set by regulatory bodies.
4. When Are Your Financial Statements Due?
The timing of financial statement submissions varies:
a. Annual Financial Statements
Typically, companies need to submit their Annual Financial Statements annually, and this is due within 12 months of their financial year end. Consult your accountant to determine the exact deadline.
b. Interim Financial Statements
For larger businesses, interim financial statements (quarterly or semi-annually) may be required. These provide a snapshot of performance between annual statements.
5. Who Is Responsible for Preparing Financial Statements?
Your bookkeeper and accountant play critical roles:
a. Bookkeeper
The bookkeeper maintains accurate financial records, reconciles accounts, and prepares preliminary financial statements. They ensure data accuracy and completeness.
b. Accountant
The accountant analyses financial data, adjusts entries, and finalises the statements. They interpret the numbers, provide insights, and ensure compliance. An accountant’s expertise is vital for accurate reporting.
6. How Monthly Accounting and an Accountant Ensure Timely and Correct Submissions
Monthly accounting involves regular updates to financial records. An accountant reviews these records, identifies discrepancies, and ensures timely submissions. Here’s how it works:
- Regular Reconciliation: The bookkeeper reconciles bank statements, accounts payable, and receivable monthly.
- Accurate Data Entry: The bookkeeper enters transactions promptly, minimising errors.
- Review and Adjustments: The accountant reviews financial records, makes necessary adjustments, and prepares accurate statements.
- Timely Submission: With monthly accounting, the accountant ensures that directors submit financial statements on time, meeting legal and tax deadlines.
In summary, financial statements are the backbone of your business’s financial health. Partnering with a skilled bookkeeper and accountant ensures accurate reporting, compliance, and informed decision-making.
Remember, whether you’re a small business owner or a growing enterprise, understanding your financial statements is essential for success.
Contact Ready Accounting should you need assistance with your financial statements.
