Preparing Financial Statements services 2018-05-03T07:34:36+00:00

Preparing Financial Statements services

The preparation of the financial statements. Understanding financial statements is essential to the success of a small business. They can be used as a road map to guide you in the right direction and help avoid an expensive collapse. The financial statements have a value that goes far beyond the preparation of tax returns or requesting loans.

Below you will find information on the main financial statements: the balance sheet and the income statement.

-Balance sheet


-Liability and Net Worth


-Results State

The balance sheet is an image of the financial aspects of the business. It includes assets and liabilities and equity. The “end result” of a balance sheet should always include (asset = liability + equity). The individual elements of the balance sheet change daily and reflect the activities of a company. Analyzing how the balance sheet changes over time will reveal important financial information about a company. It can help you control your ability to raise revenue, manage your inventory, and evaluate your ability to satisfy creditors and shareholders.


The liability and equity in the balance sheet represent sources of funds. The liability and net worth are made up of creditors and investors who have lent cash or its equivalent for their company. It is a source of funds that allow you to continue your business or expand your operations.

The assets represent the use of the funds. A company uses cash or other funds contributed by the creditor / investor to acquire assets. Assets include things of value that are owned or owed to a business.

Liabilities represent obligations with creditors while equity represents the investment of the owner in the company. Both the creditors and the owners are “investors” in the company, the only difference is the time frame in which they await reimbursement.


Anything of value that is owned or owed to the company is included in the assets section of the balance sheet.

Current assets

Current assets have a maturity of less than one year. They are the sum of:


Accounts receivable (C / C)


Effects receivable (N / A)

Other current assets

Cash : The cash pays the bills and obligations. The inventory, accounts receivable, land, buildings, machinery and equipment do not pay obligations even though they can be sold for cash and then used to pay the bills. If the money is insufficient or the company is inadequately managed, it can become insolvent or forced into bankruptcy. Cash includes all checking, financial market and short-term savings accounts. Get more information about how to develop a cash flow analysis for your business.

Accounts receivable (CC) : Accounts receivable are dollars owed by customers. More specifically, the inventory is sold and shipped, an invoice is sent to the customer, and the cash is charged later. The account receivable exists for the period of time between the sale of the inventory and the receipt of cash. Accounts receivable are proportional to sales._x000D_ As sales increase, the investment to be made in accounts receivable will increase.

Inventory: The inventory consists of the goods and materials that a company buys to resell with a profit. In the process, sales and accounts receivable are generated. Companies buy inventory of raw material that is processed (called work in process inventory) to be sold as inventory of finished products. For a company that sells a product, inventory is often the first use of cash. Buying inventory that will be sold to earn money is the first step to making a profit. The sale of inventory does not return cash to the company – it creates an account receivable. Only after a lapse of time (equal to the collection period of the account receivable) will the money return to the company.

At the same time, a company must maintain sufficient inventory on hand to avoid depleting stocks (having nothing to sell). Insufficient inventory will reduce profits and may result in the loss of customers.

Documents receivable (D/C) : The bills receivable D/C are a debt claim to the company that has made a loan, such as a promissory note. The effects receivable are usually a claim of a doubt from one of three sources: customers, employees or executives of the company.

The effects to charge of a client is when the client who borrowed from the company did not pay the invoice according to the payment terms. The customer’s obligation may have become a promissory note.

The effects to charge of the employees can be for legitimate reasons, such as the initial payment of a house, but the business is neither a charity nor a bank. If the company wants to help an employee, his or her joint obligor can do so in a bank loan.

An official or owner of the company that borrows from the company is the worst form of an effect to collect. If an official takes the money from the company, it must be declared as a dividend or withdrawal and reflected as a reduction in net worth. Treating it in any other way leads to a possible manipulation of the declared net equity of the company. Banks and other credit institutions often condemn this practice.

Other current assets : Other current assets consist of expenses paid in advance, other miscellaneous assets and current assets.

Fixed assets

Fixed assets represent the use of cash for the purchase of physical assets whose life exceeds one year, for example:



-Construction equipment and machinery

-Furniture and fixtures

-Rental improvements


Intangibles are assets with indeterminate lives that can never mature and become effective. For most purposes of the analysis, intangibles are ignored as assets and deducted from equity, since their value is difficult to determine. Intangibles consist of assets such as:

-Research and development


-Market study

-The customer value

-Operating expenses

Intangibles are similar to expenses paid in advance – the purchase of a benefit that will involve an expense at a later date. Intangibles are recovered in the same way as fixed assets, through increased annual charges (amortization) against income. Standard accounting procedures require that most intangibles be accounted for as purchase expenses and never as capital (included in the financial statement). The exception to this rule is the purchase of patents that can be amortized over the life of the patent.

-Other assets

Other assets consist of several accounts, such as deposits and long-term notes receivable from third parties. These are converted into cash when the asset is sold or when the promissory note is reimbursed.

Total assets represent the sum of all assets owned or owed to a business.

-Liability and Net Worth

Liabilities and equity are sources of cash listed in descending order with respect to the most compelling creditors and as soon as possible to mature their obligations (current liabilities), less compelling obligations and never mature (net worth).

There are two sources of financing: lender-investor and owner-investor. The financing of the lender-investor consists of commercial suppliers, employees, fiscal authorities and financial institutions. The owner-investor financing consists of shareholders and directors who make a loan for the business. Both the lender-investors and the owner-investors have invested cash or their equivalent in the business. The only difference between investors is the due date of their obligations and the degree of their haste.

-Current liabilities

Current liabilities are those obligations that will mature and must be paid within the first 12 months. These are the liabilities that can create the insolvency of a company if the cash is insufficient. A group of satisfied creditors is a healthy and important source of credit for the use of short-term cash (inventory and accounts receivable). A group of dissatisfied creditors can threaten the survival of the company. The best way to ensure that your creditors are satisfied is to keep your obligations up to date.

Current liabilities consist of the following obligation accounts:

-Accounts Payable (C / P)

-Accumulated expenses

-Effects to be paid (E / P)

-Circulating portion of long-term debt (DLP)

A correct adjustment of the sources and the use of funds requires that short-term (current) liabilities should be used only for the purchase of short-term assets (from inventories and accounts receivable).

Accounts payable (C / P) : Accounts payable are obligations with an expiration date that must be paid on time to commercial suppliers who have provided inventory, goods or services used in the operation of the business. Suppliers generally offer conditions (just as you do with your customers), since the competition of the providers offers payment terms. Whenever possible, you should take advantage of the payment terms, as this keeps your costs down. If the company is paying its suppliers at the right time, the payment days will not exceed the payment terms.

Accumulated expenses : Accumulated expenses are obligations contracted, but are not billed as salary and payroll tax or resulting obligations. These expenses can also be paid over a period of time, such as interest on a loan.

Accumulations include salaries, payroll taxes, interest payable and employee accrued benefits, such as pension funds. As a category related to work, it should vary according to the payroll policy. For example, if wages are paid weekly, the earned category should rarely exceed a week’s payroll and payroll taxes.

Effects to be paid (E / P) : The effects to be paid are obligations in the form of promissory notes with short-term maturities of less than 12 months. Often, they are payable at sight. Other times they have specific due dates (maturities of 30, 60, 90, 180, 270, 360 days are typical). The effects to be paid include only the amount of the principal amount of the debt. Any interest owed appears accrued.

The proceeds of the bills payable must be used to finance current assets (inventory and accounts receivable). The use of the funds must be short-term so that the asset matures in cash before the maturity of the obligation. A correct adjustment would indicate indebtedness for seasonal changes in sales, which cause changes in inventory and accounts receivable, or to pay accounts payable when attractive discount conditions are offered for prompt payment.

-Non-current liabilities

Non-current liabilities are those obligations that will be payable in the following year. There are three types of non-current liabilities, only two of which are listed in the balance sheet:

-The non-current portion of long-term debt (DLP)

-The Effects to be paid to executives, shareholders or liabilities

-quotas of the owners

The non-current portion of the long-term debt is the main part of a term loan not payable in the next year. Official subordinated loans are treated as an element between debt and equity. The contingent liabilities that appear in the notes to the balance sheet are the possible liabilities, which we hope will never expire.

Non-current portion of long-term debt (DLP): The non-current portion of the DLP is the portion of a long-term loan that is not payable within the next 12 months. The current liabilities section is listed below to show that the loan does not have to be fully liquidated in the next year. The DLP provides cash that will be used for a long-term purchase of assets, whether permanent working capital or fixed assets.

The effects to be paid to executives, shareholders or owners : The effects to be paid to executives, shareholders or owners represent money that shareholders or owners have put into the business. For fiscal reasons, owners can increase their capital investment beyond the initial capitalization of the business through loans to the company instead of buying additional shares. Therefore, any return on investment of the owners can be paid as tax deductible financial expenses instead of in the form of non-tax deductible dividends.

When a company borrows from a financial institution, it is common for official loans to be subordinated or put into a waiting period. The subordination agreement prohibits the official from claiming his loan before the return of the loan from the institution. When it is in the waiting period, the loan will be considered as equity of the financial institution. The lenders consider the effects to charge of the official as a bad signal, while the effects to pay of the official are considered as encouraging.

Contingent liabilities : Contingent liabilities are potential obligations that do not appear in the balance sheet. They are listed in the balance notes, since they can never be matured or payable. Contingent liabilities include lawsuits, guarantees and cross-guarantees.

If the business has been sued, but the litigation has not started, there is no way to know if the trial will result in a liability for the company. It will appear in the notes to the balance sheet, because, although it is not a true responsibility, it does represent a potential liability that may affect the ability of the company to meet its future obligations. Alternatively, if the business guarantees a loan made by a third party to an affiliate, the liability is contingent since it will not expire as long as the affiliate complies with its obligations.

Total liabilities Total liabilities represent the sum of the monetary obligations of a business and what the claims of the creditors have on their assets.


Capital is represented by total assets minus total liabilities. Capital or net worth is the most patient source of funds and the last to mature. It represents the participation of the owners in the financing of the assets.

Results State

Income statements, also known as profit and loss , include all income and expense accounts for a period of time. This income statement shows how much money the business will have after all expenses are accounted for. A statement of results shows no hidden problems, such as insufficient cash flow. The income statements are read from top to bottom and represent earnings and expenses over a period of time.