Financial statement preparation involves the process of aggregating accounting information into a standardized set of financials.
The completed financial statements are distributed to the management, investors, lenders, creditors & government authorities, who use them to evaluate a business's performance & for tax purposes. Following steps are vital in preparing financial statements:
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Following steps are important for the checklist that you should take care of when you prepare your financial statements:
Step 1: Verify Payable Invoices
Make sure that all invoices from suppliers & parties which are included in all categories of expenses have been received & recorded, then reconcile those and prepare the payable report.
Step 2: Verify Customer Invoices
Differentiate between your main source of income & other sources of income. Make sure the invoices have been issued, then reconcile after that and prepare an account receivable report.
Step 3: Accrue Unpaid Wages
Credit wage payables or credit accrued wage payables are the wages that have been recorded through an accrual adjusting entry. We have to accrue all unpaid wages & mention their records.
Step 4: Calculate Depreciation
Depreciation refers to an accounting method used to allocate the cost of a tangible- or physical asset method over its life expectancy. There is a different method we can use that is commonly used to calculate depreciation, which is the “straight line method”.
This is how it is calculated: Subtract the asset salvage (it is the estimated book value of an asset after depreciation is completed, based on what it expects to receive in exchange for the asset at the end of its useful life) from its cost to determine the amount that can be depreciated. Then divide this amount by the number of years in the asset’s useful life span and divide by 12 to receive the monthly depreciation of the asset.
Step 5: Value Inventory
Take the inventory value at the beginning of stock entry & during the end period. We need those values for different parts of the business and it’s financial statements.
Step 6: Reconcile Bank Accounts
Reconcile every transaction with the bank: customer invoices, purchases, expenses etc.
Step 7: Post Account Balances
Re-locate all the balances in the sub ledgers to the general ledger.
Step 8: Review your Accounts
What is an account review? It is an operation that consists of carefully verifying all accounting balances of the company before preparing the financial statements and any additional financial reports.
Step 9: Accrued Income Taxes
Accrued taxes refer to taxes assessed against a company that have not yet been paid, whether those taxes are on the earned revenue or included on the value of any property that the company owns.
Step 10: Close Accounts
Closing accounts refers to journal entries made at the end of an accounting period to transfer temporary accounts to permanent accounts.
Step I2: Issue Financial Statements
Print a final version of the financial statements. Based on this information, include footnotes in the statements & prepare a cover letter that explains the financial statements. Then, assemble this information into packets and send them to the standard list of recipients.
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Information references: Financial statement preparation — AccountingTools. https://www.accountingtools.com/articles/financial-statement-preparation.html
Depreciation Definition - Investopedia. https://www.investopedia.com/terms/d/depreciation.asp