Jessica Kent reports:
"Financial statements are relied on by management, investors and lenders to ascertain a [business'] financial position. Financial statements presented for these purposes are a balance sheet and an income statement. While the balance sheet is presented as of a specific date...the income statement presents activity for a period of time...Be sure to clearly indicate the financial statement period so readers are not confused...Verify the general ledger has been updated through the date financial statements will be prepared for. If necessary, make adjusting journal entries for items, such as depreciation and amortization or account mispostings...Prepare the balance sheet by listing asset categories on the left, and liabilities and equity categories on the right...Record the dollar value of each asset, liability and equity account balance on the balance sheet template, according to the balance listed per the trial balance. After all amounts are listed, verify that total assets are equivalent to total liabilities and equity...Record total sales and subtract returns, and allowances to begin the preparation of the income statement. From this, subtract the dollar value of cost of goods sold. Cost of goods sold represents materials, subcontractor costs, direct labor and other costs associated with specific projects. The resulting number is known as gross profit...Prepare a detailed listing of all general and administrative expenses, including officer compensation, office salaries, rent, dues and subscriptions, utilities, auto expense, bad debt expense, depreciation and amortization expense, telephone and office expense. Subtract all general and administrative expenses from gross profit to arrive at net profit...Be sure to label each item in the balance sheet and income statement properly so that readers of the financial statements are not [misled] or confused."
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