A balance sheet is an important financial statement prepared by a company at a specific period in regular interval to showcase its financial position.
It includes assets, liabilities, owner’s equity, total debt etc.
P&L or say profit & loss report present the total income and expense of a business in a particular or specific period. It also carries much of importance like a balance sheet. It includes total sales, cost of goods sold, operating expenses etc. It helps to find out the net profit of a business.
First, let’s find out the importance of preparing reports and then we will jump to the easiest way of preparing these reports.
Why reports should be prepared in a business?
A balance sheet is the main point interest for a shareholder, company advisor, business partner etc.
- It helps them to understand the business capability to use its resources to generate more cash.
- A better financial health creates a confidence among investors to invest their money
- A properly maintained balance sheet will help a business to get a loan for the financial institution or bank for business growth
- It also helps business owners to ascertain the business performance and goal achievement rate and ultimately guides him to take strategic business decisions
- A balance sheet provides information to understand the state of liquidity in a business to its shareholders
- P&L report provides detail information on the business performance over a period of time. A business owner would be able to find out how well his business performed in terms of profit and loss. So that he can revise marketing strategies to attain a new level of profit margin.
- P& L statement acts as proof of your business progress report or says performance report. This will provoke other companies to go for a deal or partnership with your business.
- A well prepared P& L statement will save your valuable time in tax filing as you will have all the information handy.
Now lets’ find out the best & easy way to prepare a balance sheet and P&L …
Balance sheet and P&L can be prepared in two ways both manually and automatically by using accounting software.
As we are supposed to discuss the easiest & quickest way of report preparation, so let’s first step into this method:
Here I would like to suggest all business owners to start using accounting software, which incorporated all business report preparation. The best accounting software for easy GST accounting and automated preparation of all business & tax related reports.
Here is the step by step procedure to prepare a balance sheet and P&L reports using SlickAccount in just a second:
- If you are already using SlickAccount then go to slickaccount.com and login to your account. If you are not using it then you can sign up with us. After login to your account, you will see this dashboard
- Then choose your company and click on reports also you will find the balance sheet and P&L statement on the dashboard itself
- Then click on the required report also you can download the report
This way you will get you all business reports quickly also it will diminish human error chances.
Here is the detail procedure of preparing a balance sheet and P&L manually but it will be time-consuming and a little bit complicated.
The Balance sheet abides by the following rule: Assets = Liability + Shareholder’s Equity
In the balance sheet, total asset is divided into two parts i.e. current & non-current assets. Current assets are cash, bank & trade receivables while non-current assets are fixed assets like depreciation etc.
Same as asset current liabilities are: Short-term loans, Salary payable, rent payable, taxes, any credit card payments etc. Non-current liabilities include capital, reserve & surplus, long-term loans, bonds payable etc.
- Keep accounting records
To prepare a balance sheet you will need all accounting details of assets, liabilities, and owner’s equity. So get all the details from your accounting books and calculate the value of each.
- Find out the total value
You or your accountant need to calculate the total amount of assets, liabilities, equity with the help of accounting records to prepare the balance sheet.
To calculate total equity use this formula; Owner’s Equity = Assets – Liabilities
Equity should be always positive as it shows the value of a company’s capital. If in any case, it will be negative then it’s very harmful to a business as getting finance will be almost negligible with negative capital worth. Equity can also include opening balance, dividend, stock, retained earnings, owners drawings etc.
After reckoning all value you need to put in respective figures in the correct field to prepare a balance sheet. Here is a sample of the balance sheet:
P&L statement also needed at the time tax return filing. A projected P&L statement is required to show company profit earning capability or future earnings at the time of funding.
Information required at the time preparation:
- All transaction details made from business account also transaction details made using a business credit card
- Total sales made during the period
- All operating expenses including rent, administrative etc
- Any other transaction made using business credit cards also cash payments
Step by step process
- Calculate your business’s total sales made during a particular period also add specific sources from which your business earned revenue
- Then input all your expense details
- Reckon the difference between sales & expenses. This will be the business earning i.e. EBITDA(Earnings before interest, taxes, depreciation & amortization
- Then deduct the total debt percentage from total earnings
- Add all other expenses like allowances, discounts, marketing expense etc.
Both balance sheet and P&L statement are vital for business as one depicts the financial health and other one shows total income in a specific period. P&L statement helps to keep an eye on business finance in order to frame new strategies for better improvement. SlickAccount is the best accounting software and a business owner can get all business & tax related reports from this software. It’s easy to use & seamless cloud accounting software in India.