For business owners operating in Chapel Hill, from the long-standing retail shops along Franklin Street to the emerging tech startups in Meadowmont, maintaining a clear understanding of a company’s financial health is a foundational element of long-term planning. Our financial statement preparation is a formal process designed to help organize complex data into clear, actionable reports.
At Steward Ingram & Cooper PLLC, our CPA firm offers services aimed at providing comprehensive financial reports. Whether you are a local non-profit supporting the UNC community or a growing corporation in Southern Village, we focus on helping you ensure your financial statements are prepared in accordance with professional standards and provide useful insights for your specific situation.
Understanding Our Financial Statement Preparation Services
Financial statement preparation is the process of compiling an organization’s financial data into standardized formats for a given period. This process is part of the broader accounting cycle and is intended to provide a snapshot of a company’s financial position at a specific point in time. By utilizing a structured accounting system, your business can categorize its activities to better understand how money moves through operations.
The 5 Basic Financial Statements
While many small business owners focus primarily on revenue, a complete set of financial statements generally consists of five key components:
- The income statement, which shows a company’s revenues and expenses over a specific period, revealing the net income or loss for that period.
- A balance sheet that provides a snapshot of a company’s assets, liabilities, and shareholder equity at a specific point in time.
- A cash flow statement which details the inflows and outflows of cash categorized into operating activities, investing activities, and financing activities.
- The statement of retained earnings, which outlines how earnings are either kept in the business or distributed as dividends over time.
- Note disclosures, which provide necessary context regarding the accounting policies and accounting principles used to prepare the reports.
Why Chapel Hill Businesses May Benefit from Professional Financial Statements
Managing a business near University Place or the Research Triangle Park often requires meticulous attention to detail. Accurate financial statements may enable businesses to track expenses, potentially optimize revenue, and help inform strategic hiring or expansion decisions.
If your organization is looking to apply for a business loan at a local bank or attract new investors, providing clear financial data is generally required. Transparent, accurate financial reports are generally considered essential for seeking to secure loans or capital from banks and investors. These documents allow third parties to assess the liquidity and overall company’s health before making a financial commitment.
Businesses in North Carolina must comply with specific state and federal regulations, which often require meticulous bookkeeping for accurate tax filings. Relevant compliance factors for local businesses may include:
- Most entities in North Carolina must file an annual report with the NC Secretary of State, with specific deadlines based on the entity type.
- Businesses must collect and maintain annual financial statements for at least the last three fiscal years in North Carolina.
- The current corporate income tax rate for C corporations in North Carolina is 2.5%.
- Local businesses in Chapel Hill must also comply with state and local sales regulations, which includes collecting sales tax for taxable goods.
Deep Dive: The Components of Financial Reporting
To better understand a company’s financial performance, it is helpful to look at how different statements interact with one another.
Analyzing the Income Statement
The income statement is a primary tool used to determine a business’s net profit. By calculating sales revenue and subtracting the cost of goods sold and operating expenses, the report illustrates the net income for a specific reporting period. This analysis can be useful for identifying trends in your business’s profitability.
Understanding the Balance Sheet
A balance sheet reflects the fundamental accounting equation: Assets = Liabilities + Shareholder Equity. This statement lists what a company owns, such as current assets and fixed assets, alongside what it owes, including current liabilities and long term liabilities. This snapshot is often used to measure the net worth and financial stability of the organization.
Tracking the Cash Flow Statement
Understanding cash flow is often critical for maintaining daily operations. A cash flow statement details how cash is generated and used through operating, investing, and financing activities. This helps owners see if their accounting system is translating theoretical profit into actual liquid cash.
Levels of Financial Statement Services
Our CPA firm provides different levels of service depending on the needs of the organization and the requirements of external stakeholders.
Financial Statement Audit Services
An audit is the highest level of assurance service. During this process, we examine internal controls, test transactions, and verify accounts to determine whether the financial statements are presented fairly in accordance with generally accepted accounting principles. This service is often requested by lenders or investors for larger businesses and nonprofits.
Financial Statement Review Services
A review provides limited assurance on the financial statements and is narrower in scope than an audit. It consists of applying analytical procedures and verifying how information is compiled. Financial review services may be useful for ensuring your business is following required regulations while striving to work efficiently.
Financial Statement Compilation Services
A compilation is the most basic level of financial statement service. It is based on the organization’s management representations in a format appropriate for the circumstances. In a compilation, a client may choose to include a complete set of footnotes or omit substantially all footnote disclosures.
The Process of Preparing Financial Statements
Preparing financial statements involves a disciplined series of steps within the accounting cycle to help ensure data integrity.
Choose the reporting period, which can be monthly for short-term analysis or yearly for long-term trends.
Review all accounts within the accounting system to ensure transactions are recorded.
A trial balance is prepared at the end of an accounting period to verify that accounting entries are recorded accurately.
Make adjusting entries for things like depreciation of long term assets or accrued interest.
Generate the final financial statements, ensuring that the ending balance on the reports matches the verified records.
Avoiding Potential Reporting Mistakes
Inaccurate financial reporting can lead to misguided business strategies and poor resource allocation, as stakeholders rely on these reports to assess a company’s health. Common errors that businesses may face include:
A lack of comprehensive and comparative data presentation, which can lead to misinterpretation of the financial health of an organization.
Failing to adjust the trial balance accurately, which can result in significant errors in the income statement and balance sheet.
Not including all relevant expenses, such as operating expenses and cost of goods sold, which can lead to an inaccurate representation of profitability.
The fallout from inaccurate financial reporting can include misaligned budgets, lost financing opportunities, and wasted time on data reconciliation.
Why Choose Steward Ingram & Cooper PLLC for Your Financial Reports
Our team is committed to providing comprehensive financial statements aimed at giving you clarity regarding the financial health of your organization. We work with a variety of clients in Chapel Hill, helping them plan for the future while navigating current financial obligations.
By utilizing professional preparation services, your business may find it easier to create, implement, and track budgets and forecasts that foster sustainable growth. Additionally, regular review of financial statements may help in detecting and potentially preventing internal issues like fraud or embezzlement.
Frequently Asked Questions
What is a preparation of financial statements?
It is the professional process of summarizing a company’s transactions and financial position into standardized reports, such as a balance sheet and income statement, for a specific period of time.
What are the 5 basic financial statements?
The five core reports generally include the income statement, the balance sheet, the cash flow statement, the statement of shareholder equity, and the associated note disclosures.
Can you prepare your own financial statements?
While a business owner may use software to generate reports, professional preparation by a CPA firm can help avoid errors and ensure that the statements are in a format appropriate for banks or investors.
Can a non-CPA prepare financial statements?
A non-CPA may prepare financial statements for internal use; however, they cannot perform audits or reviews that provide professional assurance to third parties. For many businesses in North Carolina, having a CPA handle the reporting period ensures that accounting principles are strictly followed to help avoid costly penalties.