Financial statements are not only a legal obligation but are essential if you are to assess whether your business is solvent and making a profit. If your business is incorporated as a company or closed corporation, you have a legal obligation, according to the Income Tax Act and Tax Administration Act to prepare accurate annual financial statements within six months after the end of its financial year. The annual financial statements enable the business to determine how much tax it has to pay.
What is an annual financial statement?
A financial statement is a report that shows the financial activities and performance of a business and is used by lenders and investors to check a business’s financial health and earnings potential. Annual Financial Statements refer to the annual presentation of a business’s financial performance and comprise of a balance sheet, income statement, statement of changes in equity and a cash flow statement
- The balance sheet
The balance sheet contains a list of your company’s assets (such as cash, accounts receivable and equipment) and liabilities (such as accounts payable and loans) that must be paid to other parties. It is essentially a snapshot of your business’s financial condition at a single point of time.
- Income statement (profit and loss statement)
Also known as an income statement, this report shows your business’s revenues and expenses. Expenses are subtracted from revenues to show your business’s profit or loss figure, also known as net income.
- Statement of changes in equity
This is also known as a statement of owner’s (or shareholder’s) equity or statement of retained earnings. It is a measure of the assets your business has generated through profitable activity, retained in your business, and not paid out to shareholders as dividends. A large amount of retained earnings is generally regarded as a sign that the company has done well and is reinvesting its profits in itself.
- Cash flow statement
The business’s cash flow statement shows the sources and uses of cash over a fixed period of time and informs creditors and investors about the solvency of your business, where your business is receiving its cash from and what it is spending its cash on.
We’re as invested in your business as you are
When we prepare financial statements for our clients, we take pride in ensuring we know every detail and educate all our clients on how they can maximise growth in the business. For more information, speak to our experienced tax and accounting team today.