Like any good small business owner, you likely want to know how your business is performing on a regular basis. You can use interim financial statements for exactly this purpose. Interim financial statements help you keep spending on track with your earnings and avoid costly mistakes along the way. Below, find an interim reporting definition, comparisons of interim and annual financial statements, and a guide to crafting interim financial statements.
An interim financial statement is any financial report that covers a timeframe of less than one year. The most common form of an interim financial statement is a quarterly report.
Interim financials can be crucial for your small business since they provide a timely glimpse into your company’s operations well before your annual statements become available. Additionally, annual statements may not be ready until long after the year in question ends, making interim financials all the more important. Interim financial reporting is also vital for streamlining communication between your small business, its customers, and its investors.
Annual financial statements are financial reports covering a full year of your small business’s operations. They include profit or loss statements, cash flow statements, and a balance sheet.
Annual statements are useful not just for financial purposes, but as marketing tools. It is common practice for businesses to work extensively on creating and presenting annual financial statements that are as visually appealing as they are informative. Annual statements may be issued to employees, customers, vendors, investors, and suppliers.
It may seem like the interim reporting definition outlined here only differs slightly from the annual financial statement definition. In reality, there are many ways in which interim and annual statements differ. Among them are:
To create interim financial statements, follow these eight steps:
To begin making your interim financial statement, be sure that all your expenses are properly entered into your accounting software. Even if your software integrates with your bank and automatically updates your records to include your expenses, you should double-check that past-due expenses and vendor bills have been properly entered.
An accurate picture of your small business’s financial status is incomplete without a full detailing of all your sales. Make sure that your accounting software reflects all sales – including open invoices on sales made during the period in question – before continuing your interim financial statement creation.
All debt interest can be tabulated as separate expenses. However, since interest tends to be included directly alongside all payments on loans you have taken for your small business, interest can accidentally become buried in your spending records. You can separate your interest from your loan repayments by checking that your loan statement’s principal balance matches the value recorded on your balance sheet.
Reconciling your loans and interest is only one step in the process of creating an interim financial statement. You should also reconcile all your accounts, including your checking account and credit lines. In doing so, you may discover transactions you would have otherwise accidentally excluded or duplicated.
When preparing an interim financial statement, you can do so on a cash basis or an accrual basis. Most experts recommend using the latter option (even if you use the former option for tax purposes) since an accrual basis reflects revenue earned and expenses incurred instead of cash flow. In other words, an accrual basis reflects business activity more accurately and specifically than the movement of cash in or out of your small business can.
Although your accounting software should automatically make sure that your balance sheet is in proper form, problems such as negative balances, uncategorized assets and liabilities, payroll liabilities, and opening balance equity can still slip through the cracks. You should thus manually check that your liability, equity, and asset totals all balance.
An interim financial report with inconsistent dates will present a misleading picture of your small business’s financial standing. Be sure that your statements for profit, loss, and cash flow are all for the exact same date range and that your balance sheet reflects your finances for the final day of this period.
After completing the previous steps, you can finalize your interim financial statement. If you plan to present your statement digitally, save it in an appropriate, non-editable file format before sharing it with your intended audience. If you plan to present physical copies, now is the time to print a test copy, and if everything looks as you want it to, print as many copies as you need.
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