Guide to Financial Statement Preparation at The Whitlock Co.

Financial statements provide a snapshot of your company’s current state of financial health. They’re essential tools when you need to make strategic decisions, talk to investors, apply for a business loan, and invest your capital in certain aspects of your business operations.

The Whitlock Co. can help you by preparing financial statements, whether you need them for internal or external use. Our guide explains how we provide this service.

Income Statements

An income statement, also known as a profit and loss (P&L) statement or statement of earnings, is a financial report that summarizes a company's revenues, expenses, and profitability over a specific period.

As with any financial statements, our process starts by gathering detailed records of your company’s revenue when preparing income statements. We analyze sales transactions, invoices, and any other sources of income to show a complete picture of where your company derives its revenue.

Categorizing Revenue From Operations

We can organize the data into various categories based on your business model. Product sales, service income, and upsells from one month to the next can provide a clear picture of your business earnings during the reporting period. The more income information you provide to us, the more accurate your revenue picture becomes.

Revenue might come from:

• Product sales
• Service revenue
• Subscriptions from regular customers
• License fees or royalty payments for allowing third parties to use your intellectual property
• Sales from advertising, like on websites, billboards, TV, and radio
• Leasing or renting property or equipment
• Commissions or brokerage fees

Reviewing Expenses

Next, we compile data on expenses by reviewing bills, receipts, and other documentation. The Whitlock Co. will categorize expenses into direct costs, operating expenses, and other expenditures like taxes or interest payments. You will have an idea of what expenses you might be able to trim or add to, depending on your priorities.

Typical expenses include:

• Labor costs from salaries, wages, and hiring contractors
• Paying rent or leases
• Utilities such as water, electric, phone, and internet
• Cost of goods sold (COGS), including costs from appropriations of raw materials if you’re a manufacturer
• Advertising and marketing expenses
• Insurance premiums for premises liability insurance, business insurance, and other types of insurance that protect your company’s assets.
• Travel expenses
• Office supplies
• Repairs and maintenance
• Fees for professional services like an accountant or attorney

Non-Operating Income and Expenses

After we examine operating income and expenses, we look at any non-operating items to include in the report, such as gains from asset sales, interest paid on loans, or interest earned from investments. Your income statement should reflect the comprehensive financial performance of the business from all sources and all relevant financial activities.

Non-operating income might include:

• Interest income from loans or investments, including foreign currency
• Dividend income from investing in other companies
• Gains on sale of assets, such as selling real estate or equipment
• Income from a lawsuit settlement

Non-operating expenses might come from:

• Depreciation of assets
• Loss from investments
• Restructuring such as layoffs and closures
• Impairment charges from when an asset’s fair value falls below the carrying value on a balance sheet
• Payments made as a result of a lawsuit

Finalizing the Income Statement

Once revenue and expenses are fully documented, we calculate the gross profit by subtracting the cost of goods sold or services rendered from total revenue. Then, we determine operating income by deducting operating expenses. These calculations provide valuable insights into your company’s efficiency and operational performance, helping you determine the way forward.

As the final step, we verify the accuracy of all calculations and review the statement for compliance with accounting standards. We typically incorporate the income statement into a larger set of financial statements, like a balance sheet and cash flow statement, to give you a larger picture of your company’s financial status.

Balance Sheet

A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It shows what a company owns (assets), what it owes (liabilities), and the amount invested by shareholders (equity).

Assets

First, we gather detailed records of your company’s assets. We review documents such as bank statements, inventory lists, and fixed asset registers to identify current and non-current assets. The Whitlock Co. organizes assets in various categories, like cash, accounts receivable, equipment, and property, to give you an overview of what your company owns.

Assets may include:

• Cash from currency, bank deposits, and easily convertible cash equivalents
• Accounts receivable, or the money your company is owed from customers for goods or services already delivered, typically found on unpaid invoices.
• Inventory, such as goods for sale, raw materials, work-in-progress, and finished products.
• Prepaid expenses for the delivery of goods, such as a deposit or partial payment
• Short-term investments that will be converted into cash within a year
• Property, plant, and equipment (PPE), or long-term assets used in the operations of the business, such as land, buildings, machinery, and equipment
• Intangible assets that hold value, such as patents, trademarks, copyrights, and goodwill.
• Goodwill, or the excess of the purchase price of a company over the fair value of its identifiable net assets.
• Long-term investments you expect to be converted into cash after a year

Liabilities

Next, we pivot to liabilities. The Whitlock Co. examines obligations your company owes to external parties. We analyze loan agreements, outstanding invoices, and accrued expenses to compile a comprehensive list of current and long-term liabilities. The goal of this step is to make sure the balance sheet accurately reflects your company’s financial obligations, helping stakeholders assess the company’s debt levels and liquidity.

Owner Equity

After documenting assets and liabilities, we calculate the owner’s equity by subtracting total liabilities from total assets. We’ll examine retained earnings, contributed capital, and any adjustments for dividends or withdrawals. Your company and any investors will get key insights into the net value of the business from an ownership perspective to evaluate the financial stability of your business.

Finalizing the Balance Sheet

The Whitlock Co. then reviews entries and cross-checks values to see if the numbers align with the fundamental accounting equation: Assets equal Liabilities plus Owner’s Equity. Any discrepancies prompt additional investigation and corrections to maintain the integrity of the financial data.

We’ll format the balance sheet clearly and concisely, arranging sections to reflect industry standards and reporting requirements. We use the balance sheet as part of an overall financial report alongside the income statement and cash flow statement to provide a comprehensive view of your company’s financial health.

Cash Flow Statement

We start a cash flow statement by analyzing your company’s operating activities. Our team looks at cash received from customers as well as payments made for operating expenses, including wages, utilities, inventory purchases, and more. The goal is to see the net cash flow from operations, which indicates whether your business generates sufficient cash to sustain core activities.

Investing

Another aspect of cash flow comes from your company’s investing activities. We will collect information on transactions involving the purchase or sale of long-term assets, such as property, equipment, or investments. Each inflow or outflow related to these activities contributes to the investing section of the cash flow statement. Stakeholders will then understand how the company allocates funds toward growth and expansion with this part of the cash flow statement.

Financing

Does your company utilize financing activities? We’ll look into borrowing and equity when we review loan agreements, repayments, dividends paid to shareholders, and proceeds from issuing stock. This portion of the cash flow statement shows how your company raises and utilizes capital to support its financial structure.

Finalizing the Cash Flow Statement

After organizing data, The Whitlock Co. reconciles the cash flow statement. We compare the net change in cash during the reporting period with the opening and closing cash balances in your company’s accounts. Reconciling these accounts ensures your cash flow accurately reflects your company’s liquidity position.

Statement of Changes in Equity

A statement of changes in equity, also known as a statement of retained earnings, is a financial statement that shows how the equity (or profits) of a business has changed over a specific accounting period. It breaks down the movements in the owners' equity, showing the factors that increased or decreased the equity balance.

This statement shows how equity has changed over time, beyond just the final balance, to assess your company's financial stability and long-term sustainability.

We begin by looking at the period's financial statements to determine the starting figures for each equity component, including share capital, retained earnings, and reserves. This step establishes a baseline for tracking changes during the reporting period.

Contributions and Distributions 

Next, we identify contributions from and distributions to owners. The Whitlock Co. analyzes transactions such as new stock issuances, share buybacks, or dividends paid to shareholders, whether you have a privately held, employee-owned, or publicly traded company. Documenting these items shows how ownership-related transactions impact the total equity of the business, providing transparency for stakeholders.

Profit and Loss

We examine profits or losses generated during the reporting period by linking the net income or loss from the income statement to the retained earnings section of the equity statement. This connection highlights how operational performance affects the overall equity balance and underscores the relationship between profitability and shareholder value.

Adjustments to Equity

After accounting for owner-related transactions and profits, we adjust equity accordingly. We’ll include revaluation surpluses, changes in foreign currency reserves, or adjustments for errors or accounting policy changes.

The Whitlock Co. then formats statements of changes in equity in a clear, standardized format. We’ll also verify the calculations and confirm alignment with other financial statements, such as the balance sheet and income statement.

Ensuring Compliance With Accounting Standards

Among all of these financial statements we prepare for your business, we make sure your financial statements follow Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS) based on the company’s location and industry.

We analyze records of revenues, expenses, assets, and liabilities, ensuring proper classification and treatment. For example, we make sure depreciation methods comply with guidelines and that revenue recognition aligns with the timing and terms of contracts. This step prevents errors and ensures transparency in financial statements.

The Whitlock Co. reviews documents for consistency and accuracy across all financial statements we prepare.  We’ll also look at financial results against prior periods and industry benchmarks to identify any anomalies requiring further investigation.

Financial Statement Analysis & Interpretation Through Jirav

If you already have financial statements prepared, we use a dashboarding software called Jirav. It calculates key metrics such as gross profit margin, operating margin, and net profit margin. It can compare your figures against industry benchmarks to identify anomalies in your numbers.

On a balance sheet, Jirav will examine liquidity ratios, such as the current and quick ratios, to determine the business’s ability to meet short-term obligations. Additionally, it calculates leverage ratios, including the debt-to-equity ratio, to assess your company’s reliance on debt for financing.

For the cash flow statement, Jirav will separate cash flows into operating, investing, and financing activities, identifying the primary sources and uses of cash. By evaluating metrics such as free cash flow, you’ll gain a clear picture of how your company generates cash.

Jirav connects data across all financial reports. The goal is to see how relationships alter your cash flow, such as how changes in revenue impact working capital or how shifts in equity align with profitability. This holistic approach provides a deeper understanding of your company’s financial dynamics.

Periodic Financial Reporting

The Whitlock Co. can compile all financial statements into a comprehensive review when your business needs periodic financial reporting. This review typically happens monthly when you report to management or if you are in a highly regulated industry. Quarterly reporting usually occurs when you meet with investors or file reports.

We’ll prepare a summary of key figures, such as revenue, expenses, assets, liabilities, and equity, before listing the specific details further in the report. We can also help you prepare financial reports for submission to regulators.

Financial Statement Preparation From The Whitlock Co.

The Whitlock Co. has the expertise and experience to prepare financial statements for your business. Contact The Whitlock Co. to request a consultation and see what we can do for you.