How to Make a Financial Statement: A Step-by-Step Guide

Financial statements are key documents offering a comprehensive view of a company’s financial status. Whether you’re a small business owner, an entrepreneur, or an investor, understanding how to prepare financial statements is crucial for making informed financial decisions.

In this guide, we’ll walk you through the steps in preparing financial statements, explain key components, and offer practical tips to streamline the process.

Also read: What Is a Financial Statements: A Complete Guide for Investors and Beginners

1. Gather All Financial Data

Before you start, collect all relevant financial records, such as:

• Sales invoices and receipts
• Expense reports
• Bank statements
• Payroll records

Using preaccounting software can automate data collection and ensure accuracy, reducing errors from manual entry.

2. Organize and Categorize Financial Data

Properly categorizing financial information is key to accurate reporting. Break down your data into:

• Revenue recognition: Identify all income sources.
• Operating expenses: Account for expenses like rent, salaries, utilities, and marketing.
• Assets and liabilities: Categorize expenses as current (short-term) or non-current (long-term).
• Shareholders’ equity: Reflect ownership contributions and retained earnings.

Automation tools can help streamline this process, ensuring compliance with financial reporting standards.

Also read: Types of Financial Statements: A Complete Guide

3. Prepare the Income Statement

The Income Statement, also called the Profit & Loss Statement, reflects your company’s profitability.

Key Components:

• Revenue (Sales): Total earnings from business operations.
• Cost of Goods Sold (COGS): Direct costs related to producing goods or services.
• Gross Profit: Revenue minus COGS.
• Operating Expenses: Administrative, marketing, and other costs.
• Operating Income (EBIT): Gross profit after subtracting operating costs.
• Other Income/Expenses: Non-operating activities like earning interest or selling assets.
• Net Income: The final net profit or loss after all expenditures.

Example Format:

Income Statement
Revenue               $100,000
COGS                  ($40,000)
Gross Profit          $60,000
Operating Expenses    ($20,000)
Operating Income      $40,000
Net Income           $30,000

4. Prepare the Balance Sheet

The Balance Sheet offers a snapshot of finances on a specific date, based on the accounting equation:

Assets = Liabilities + Shareholders’ Equity

Key Components:

• Assets: Includes cash, accounts receivable, inventory, equipment, and real estate.
• Liabilities: Short-term debts, loans, and accounts payable.
• Shareholders’ Equity: Capital investments and retained earnings.

Example Format:

Balance Sheet
Assets                $200,000
Liabilities           ($80,000)
Shareholders’ Equity  $120,000
Total Liabilities + Equity = Total Assets

Also read: How to Read a Financial Statement: A Guide for Dummies

5. Prepare the Cash Flow Statement

The Cash Flow Statement tracks cash movements and helps manage cash flow management effectively.

Key Sections:

• Operating Activities: Cash flow generated from primary business activities.
• Investing Activities: Cash used for asset purchases or received from sales.
• Financing Activities: Includes loans, debt repayments, and shareholder transactions.

Example Format:

Cash Flow Statement
Operating Activities     $50,000
Investing Activities    ($20,000)
Financing Activities    ($10,000)
Net Cash Flow           $20,000

6. Review and Reconcile

Before finalizing your financial statements, ensure:

• All financial entries are correct.
• The accounting equation balances.
• Transactions match bank statements and supporting documents.

Many businesses use accounting software to automate reconciliation, ensuring compliance with financial reporting standards such as GAAP or IFRS.

Grasping how to prepare financial statements is vital for any business. Whether you’re managing a startup or an established company, following these steps in preparing financial statements will help you maintain transparency, attract investors, and ensure compliance with financial standards.

By leveraging automation and adhering to accounting principles, you can streamline your financial reporting process and focus on growing your business.

Also read: 6 Limitations of Financial Statements

Financial Statement Preparation in Indonesia

Accurate financial statements are crucial for business success in Indonesia, and many companies turn to professional services to ensure full compliance with accounting standards and tax regulations.

By partnering with experts, businesses can rest assured that their financial reports meet Financial Accounting Standards and requirements, providing reliable data for smart decision-making. Professional services also save valuable time and resources while offering deeper insights into financial performance and trends to support strategic growth.

At InvestinAsia, we specialize in crafting customized financial statements that align with both local and international standards. Our team of professionals is dedicated to delivering precise, compliant, and insightful financial reports that empower your business to make confident decisions.

Discover how we can help your business succeed—visit InvestinAsia’s Accounting and Financial Statement Services today.

Contact us now for FREE consultation and special package!

reference: expensify.com