Financial report tell the information of company’s financial within certain period which also tells the company’s performance. Generally, it consists of the balance sheet, income statement, capital changes, and cash flow. Financial statements for a service business is not much different from trading business unless inventory account is not found in the service business.
Following are the steps to prepare financial report in service business
- Prepare Profit Loss Statement
The first report should be made is profit loss report. There are three components to make the profit loss report: service earning, cost, and profit/loss. To make the profit loss report, you need to use the balances on the earning and expenses account of the trial balance.
- Prepare the Balance Sheet
The next step is to prepare the balance sheet. The balance sheet is a part of the financial statements, which the entity is generated during an accounting period showing the financial position by the end of the period.The balance sheet consists of three elements: assets, accounts payable and capital. Company’s capital consists of current assets in the form of cash, bank and receivables and fixed assets in the form of vehicles, buildings, and land. Account payable on the balance sheet is company’s source in the form of bank or other parties loans. While capital is the company’s source from the company’s owner.
The balance sheet is made by entering the balances of the three components taken from the trial balance.
Financial Statement Objectives
According to Financial Accounting Standards, the purpose of financial statements is to provide information regarding the financial position, performance, and changes in the financial position of a company that is beneficial to a large number of users in decision making.
The prepared financial statements are to meet most of the users’ needs. However, the financial statements do not always provide the required information in making economic decisions. It is because they generally reflect the financial effects and past events, and are not required to provide non-financial information.
The financial statements also describe the management’s performance to manage the resources. The users need to evaluate the management’s accountability and capability to make economic decisions. This decision includes withhold or sell company investment, reform or replaces the management.
Preparing financial report could be a hard work especially for those who are not quite familiar with accounting. However, it is not a big problem anymore since nowadays accounting software are available to help owners in preparing financial report properly and easily. One accounting software worth trying is Zahir Accounting. Zahir Accounting is designed to be user-friendly and applicable for any business.
