How to prepare monthly financial reports? | Free Guide with Samples
Financial statements or financial reports are formal records of an entity’s financial activity. It is the main part of any business plan for attracting investors or loans. A bookkeeper usually creates monthly financial reports by setting financial strategies.
What are Monthly Financial Reports?
The most mandatory financial reports include
- A balance sheet that tracks the value of things owned & owed
- It tells whether the business gained/lost value and its current financial position
- Income statement that shows money earned & spent
- It tells if the business had a profitable month or not
- Cash flow statement denoting the cash that a business earned
- It tells the spendable money a business has on credit
These 3 will work together to determine and forecast the financial status of any organization.
The monthly balance sheet, income & cash flow statement that has been covered within a specified month is called a monthly financial statement.
Financial reporting helps an organization and its stakeholders, shareholders, potential investors & leading banks in predicting the current & future financial status of their business.
Why Monthly Financial Statements are necessary?
The findings from your monthly financial statement increase the internal business performance by updating them with changes or significant progress in the financial status and cash flow.
A business’s monthly financial report determine
- If the business can efficiently generate cash flow& where the cash needs to be used
- Finding the potential issues that impact profitability
- Particular information of a business transaction
- Calculating whether the company can pay its debts
- Developing the financial ratio with a financial position
How to prepare a monthly financial report sample?
To create a monthly financial statement/report, you must have the following points in mind
Step 1: Preparing a Balance Sheet
A balance sheet is a statement of financial position or snapshot of business for a specific month. List all assets, liability, and net worth using the accounting equation which gives
Assets = Liabilities + Owner’s Equity or Net Worth
Step 2: Preparing an Income Statement
The income statement is also known as P&L or Profit & Loss statement that lists the income, expense, and net income/loss.
Net Income or Loss = Income – Expenses
Step 3: Preparing closing entries to go forward for the next monthly accounting report
- Close revenue accounts by preparing a journal entry to debit all revenue accounts
- Credit an account named income summary for total
- Close expense accounts by preparing a journal entry to credit all expense accounts
- Debit the already created income summary account for a total
- Transfer that income summary balance to the capital account by preparing a journal entry that clears the income summary account
- This will transfer the business’s net income/loss to the equity account of the owner
- Close drawing account
- In case, the business is either sole proprietorship or partnership, then close your drawing account by making a journal entry. It will credit the drawing account & debit the equity account of the owner
After closing all entries, record the totals in your general ledger to begin the amount for your new monthly accounting report. All the revenue & expenses must have a zero balance.