Financial Statement Audits and Compilations

Maintaining accurate monthly financial statements is one of the keys to running a profitable business. Most businesses have a bookkeeper who maintains the information on a financial statement, and a CPA who audits and/or compiles the information. A business owner than can use the information to chart the course of the business.

The four items included on basic financial statements are:

Income statement.

An income statement documents revenues and expenses, and calculates the company's net income or net loss for a specific period of time. If a company has “net income,” it means total revenues are greater than total expenses. Net loss means total expenses are greater than total revenues.

Statement of owner's equity.

After the income statement is prepared, a CPA typically prepares the Statement of Owners Equity. This document shows the equity balances and the items affecting owner's equity during the period. These items include investments, the net income or loss from the income statement, and withdrawals. Balances enclosed by parentheses are subtracted from unenclosed balances.

Balance sheet.

The balance sheet shows the balance, at a particular time, of each asset, each liability, and owner's equity. It proves that the accounting equation (Assets = Liabilities + Owner's Equity) is in balance. The ending balance on the statement of owner's equity is used to report owner's equity on the balance sheet.

Statement of cash flows.

he statement of cash flows tracks the movement of cash during a specific accounting period. It assigns all cash exchanges to one of three categories—operating, investing, or financing—to calculate the net change in cash and then reconciles the accounting period's beginning and ending cash balances. As its name implies, the statement of cash flows includes items that affect cash. Although not part of the statement's main body, significant non-cash items must also be disclosed.