Writing a financial report for business financial report design is very much like writing a business plan. In some ways, there are close similarities between a financial statement and a business plan except that in the latter’s case, the financial aspect is “predicted” over time. In an economic report designed for business performance, the goal is to see whether the specific enterprise made a profit over a period.
What are the components of a financial report written for business? First is the time frame or period that the report covers. Usually, a financial statement is attached to the annual report of a company enterprise, comprising a 12-month period. The top management of a business enterprise decides on the time frame and frequency of a financial statement.
Next, the writer or team assigned to prepare the financial report gathers data from some sources to look into the financial condition of the company. These data are taken from the company or business ledgers in the form of accounts payable and receivables that have already been processed. The data set includes records of inventory purchases and product sales as well as complete bank reconciliations.
The report team may also look into the possible unrecorded company liabilities as of the date covered by the report, including services that the company received that have not been invoiced, or unpaid employees whose records have been missing, and considered accrued liabilities.
Next, the team prepares the company’s balance sheet, showing three significant sub-components, which are: the company’s assets, liabilities, and equity accounts in the form of common stock and paid-in capital added for a specific date. The Balance Sheet is appropriately formatted featuring the Assets on the left column and Liabilities and equity on the right column.
How should assets be listed? By convention assets are classified as “current” and non-current.” Current assets include cash and items that will be converted into cash within 12 months of the balance sheet date. The non-current ones refer to items that will not be converted into cash within a defined period such as equipment and notes receivables. The sum of current and non-current assets refer to “Total Assets.”
Then the balance sheet will show in the next section the company’s liabilities and equity. Current liabilities are those that are due within one year and include: accounts payable, accrued liabilities, short-term portion of mortgages, and loan payments. Long-term commitments are those that would be settled beyond the 12-month period of the Financial Report. The sum of these two types of liabilities equals “Total Liabilities.”
Next, the sources of equity are listed down in the equity column. First is the assumption that if the company sold all its assets and paid-off all liabilities, how much money would be left? This amount is added to the company’s existing common stock, treasury stock and retained earnings and labeled as “Total Equity,” after which the total liabilities and total equity are combined. The Total Assets and Total Liabilities and Equity must be equal in amount.
If these two major columns are not balanced, then the work must be reviewed and re-done.
Assuming the assets and liabilities plus equity are balanced, the team now prepares the Income Statement. Under this are listed the sources of revenue. After the income statement is the Statement of Cash Flows which completes the financial report writing.