Preparing financial statements is a key task that has come under great scrutiny in recent years. Accounting firms spend a significant amount of time to assure that the financial information they provide to their clients is accurate and reliable. The precision of this financial information is highly required when the information is maintained in several documents and files.
Financial statements are written records that articulate the financial condition, activities, and the performance of a company. These statements are generally audited by CPA firms that provide accounting and tax services in NY. Financial statements are critical because they are used by investors, market analysts, and creditors to assess the company’s performance, earnings, financial health, and future stock price.
Here are the 3 main financial statement reports audited by CPR firms are:
What is it? – An income statement files the profitability of a company by telling how much money a corporation earned or lost. It particularly reflects three accounting periods – the current one plus two previous ones. These three accounting periods allow investors, market analysts, and creditors to assess the business’ earning trends over time.
How does it work? – CPA firms prepare income statements on a monthly, quarterly, or annual basis. After determining the timeframe to report an income statement, the total revenue generation of the company is calculated. Revenue reflects all the money earned by a company.
After this, expenses are calculated which typically include salaries, wages, rent, coverage, interest, and supplies. Finally, to calculate the net income, simply the expenses are deducted from the revenue generated to ascertain net income.
What is it? – A balance sheet is a key financial statement used for accounting of a company’s assets. It includes information regarding the company’s assets and also includes business’ liabilities and shareholders’ equity. The list is sorted based on liquidity. The ease with which an asset can be converted into ready cash without affecting its market price is called liquidity. The more liquid items, such as cash and inventory are listed before illiquid items such as property and equipment.
How does it work? –The main elements required for a balance sheet are assets, liabilities, and shareholders’ equity. Both current assets (e.g., cash, accounts receivable, and inventory) and non-current assets (e.g., property, equipment, and long-term investments) are included in a balance sheet.
Also, current liabilities (e.g., accounts payable, notes payable, and long-term debt) and non-current liabilities (e.g., deferred tax liabilities and bonds payable) are necessary to include. Share capital and retained earnings are the part of shareholders’ equity form as an integral part of the balance sheet.
Cash Flow Statement
What is it? – The net amount of money moving in and out of business is termed as cash flow. Cash flow can be positive and negative, depending on the amount of cash outflow. To determine the cash flow of a company, a cash flow statement is prepared. It helps in studying the financing, operating, and investing activities of a company while determining the need for external finance.
How does it work? – Cash flows are simply calculated by combining net cash flows from operating, investing, and financing activities. Operating cash flow is determined by deducting operating expenses from the total expenses whereas, free cash flow is calculated by eliminating capital expenditures from the net cash flow of operating activities. When all the operating, investing, and financing activities are calculated and combined, net cash increase or decrease is evident.
Bringing It All Together
Providing clients with accurate and reliable financial statements is the fundamental responsibility of CPA firms. Managing accounts helps to perceive the entire picture of the financial, operational, and future condition of a company. As it is very essential to understand how business accounting works, you do not have to do it alone. That is where professional CPA firms come into play, and provide accounting and tax services, especially in the empire state, New York.