Guide to The 4 Financial Statements That Bookkeepers Prepare

Bookkeepers make sure your business runs like a well-oiled machine. They can tackle your payroll, pay all of your bills on time, and spot accounting errors. Once you work with a professional bookkeeper, you’ll wonder what you ever did without one. 

Among the most important tasks of a financial bookkeeper is maintaining your essential reports.  The types of financial statements you’ll assign to a bookkeeper include: income statements, balance sheets, cash flow statements, and statements of owner’s equity. Combined, these accounting documents reveal the financial health of your business. 

Which types of financial statements do bookkeepers prepare?

Financial reporting serves a few key purposes for any business. Accurate reports allow your business to:

1. Understand the current assets and debts for your business. 
2. Identify positive or negative trends in revenue and spending. 
3. Make informed decisions about how fast to scale up. 
4. Know when you can and can’t afford to hire new staff. 
5. Provide concrete financial numbers to provide to potential investors. 

Four of the primary documents your bookkeeper will prepare for you are outlined below. Are you familiar with these bookkeeping reports? You should be.

Income Statement

An income statement, sometimes called a profit and loss statement, tells you what you spent versus what you earned in a particular time period. The report usually has two headings: Revenue and Expenses. You want revenue to exceed expenses at the bottom of the page. This yields a net profit. 

You can create an income statement over any period of time. Many businesses do them monthly, quarterly, and/or annually. By comparing income statements from different time periods, you can begin to understand important trends. When are your costs the highest? During which months do you have the most sales? Your bookkeeper will have plenty to analyse. 

The ultimate goal when producing an income statement is to make sure you didn’t spend more than you earned during a particular period of time. You also want to use what you learn from an income statement to figure out where you can cut costs and generate more revenue to increase your net profit. 

Balance Sheet

A balance sheet goes one step further than an income statement. It looks at the big picture of your business at a specific point in time, considering data beyond revenue and expenses. More specifically, a balance sheet outlines your total assets, total liabilities, and total shareholder equity on the day you create the report. 

Your assets include the cash in your bank account, any property that you own, and other physical assets that can be turned into a profit in the future. Business liabilities include outstanding vendor bills, loan balances, and any debt that must be paid in the near future. Your shareholder equity is the percentage of your company that is currently owned outright by the owner of the business.

Balance sheets have two sides. In one column, you list your current assets. On the other side, the current liabilities and stakeholder equity. The two sides should be equal. Assets = (Liabilities + Shareholder Equity). 

Your balance sheet reveals how liquid your business is, how efficiently you are using your assets, and whether you have any financial wiggle room to have a bad quarter. Over time, you want the balance sheet to trend in an upward asset direction. As you pay down liabilities, your assets and equity will increase. 

Statement of Cash Flow

The vast majority of slow businesses that fail, do so because of cash flow problems. This makes cash flow statements some of the most important financial reporting your bookkeeper will do. Your cash flow statement tracks the inflow and output of cash and cash equivalents for your business. 

Read More: What is a Cash Flow Statement?

Your cash flow statement usually has three main sections: operating activities, investing activities, and financing activities. Operating cash flow relates to your businesses core business. The sale of your goods and services falls into this category. Investing cash flow will encompass things like buying or selling property. Financing activity cash flow covers getting cash from an investor or bank, and paying interest on a loan. 

The ultimate goal of a cash flow statement is to find out how much cash your business has on hand. You can produce a cash flow statement as often as you think is relevant, though likely not more than once a month. 

Statement of Owner’s Equity

The owner’s equity reflects how much the owner possesses outright. If your business is worth $100,000 and you owe $50,000 in liabilities, the total equity is $50,000. A statement of owner’s equity is a document that explains any changes to the equity section of your balance sheet. 

Your statement begins by outlining the beginning equity balance during the time period being measured. Then, you factor in net income and the owner’s contributions. Finally, the statement considers any net losses and the owner’s withdrawals. This leaves you with an ending equity balance. 

The goal of your statement of owner’s equity is to determine if your equity is trending up or down. If you have lost equity in the business, your bookkeeper can analyse what net losses or additional debt affected your equity. 

Getting help with your financial reporting 

There are many benefits to regular financial analysis. Reporting helps you identify your liquidity, spot positive or negative trends, and incentivise investors to consider your business. As your business grows, it’s difficult if not impossible to keep up with your reports without a dedicated bookkeeper. The types of financial statements required to run a thriving business might be done quarterly — but they rely on an accurate accounting of daily transactions and weekly invoices.

You don’t have to get lost in the woods. There are experienced bookkeepers waiting to help you file essential reports. They can also offer meaningful insights about your financial health. Learn more about Visory’s bookkeeping services today. Our industry experts can help your business thrive and offer CFO-level advice about your financial affairs.