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Need Help Compiling Your Financial Statements?

Why You May Need Help Compiling Your Financial Statements

Do you need help compiling your financial statements? If it is the first time that you have to compile your financial statements, you will benefit from the basic guidelines and introduction regarding core components below.

Profit & Loss Statement

Mostly referred to as the income statement, it is the part of reporting that deals with the financial results for a particular period. You can consider it as a type of daily reporting of the operations over the last year. The statement is important, because it shows the profits and losses related to the provision of services or products and the expenses associated with such. The statement consists of the:

  • Net sales – the main source of income from the sale of goods/services. Note that this amount should make provision for the goods returned and special prices.
  • Cost of sales – detailing costs of making the products.
  • Operation profit – the profit after you subtracted the operation costs including the cost of sales.
  • Interest income – refers to any other income received.
  • Interest expense – refers to the interest that you paid to your creditors.
  • Income tax – the tax due.

Balance Sheet

It is the part of reporting that deals with your company’s financial position at a particular date such as January 2016 and details the assets that you have available to operate as well as your liabilities against these assets. The important parts include:

  • Assets – referring to the physical assets such as equipment, vehicles, machinery, and properties in addition to debtor accounts, and any income from patents in addition to deposits.
  • Liabilities – any financial obligations that can be measured such as claims against your company by creditors.
  • Owner Equity – refers to the residual interest you and the other owners have in your company.

Further components to include:

  • Current assets – refer to cash and resources you will turn into cash during operation within the next 12 months from the date you have created the balance sheet. This includes the temporary investments, inventories, payments that you have made in advance, and accounts receivable as well as expenses you have already paid, but for which you have not yet received any benefits.
  • Fixed assets – such as immovable property, equipment, machinery, and vehicles that you don’t sell as part of your business operations.
  • Depreciation – refers to the value loss of fixed assets because of usage and because newer technology is available.
  • Current liabilities – the liabilities payable within 12 months from date of the balance sheet creation.
  • Accounts due – the creditor accounts you pay for supplies and any recurring accounts.
  • Notes payable - the debt owed to a lender.
  • Accrued expenses – include expenses such as wages, insurance premiums and interest on money borrowed.
  • Long-term liabilities – debt that will not have been paid in full 12 months from the date of the balance sheet creation.

With it no longer being a requirement for smaller companies to submit audited financial statements, the risk of inaccuracies in reporting has increased. Understanding exactly which elements to include and regularly creating the balance sheet, and profit and losses statement can be a time consuming and often frustrating process. As such, more and more small to medium size companies prefer to outsource the function to experts. This helps them to ensure a high level of accuracy, objective reporting and compliance with reporting standards.

Key benefits of outsourcing the function include:

  • Accurate reporting which helps to improve decision-making.
  • On-time creation of the reports.
  • Expert advice to help with interpretation of the information.
  • Expert explanations added to the financial statements to help with interpretation.

Many South African companies now also outsource their tax functions in addition to accounting, and payroll. With franchise groups such as The Tax Shop offering superb training, standardised procedures and affordable pricing, it is possible to have the function allocated to an outsourced party while being able to focus on growing the business and staying competitive.

The balance sheet and income statement should be prepared on an annual basis to help you make informed decisions about the direction of your company. With the complexity of the financial statements you may very well need help in compiling your financial statements to accurately reflect the above.  Making use of experts such as the accountants from The Tax Shop will save you time and frustration.