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How Do You Prepare a Financial Statement: Complete Guide

How Do You Prepare a Financial Statement: Complete Guide

Preparing accurate financial statements is essential for transparency, decision‑making, and compliance. This guide explains how to prepare a financial statement, covering each step, key principles, and formats such as balance sheet, income statement, cash flow, and statement of changes in equity.

Prepare a Financial Statement – Steps Overview

Learn the full financial statement preparation process from gathering data to final output.

Step 1 – Gather Your Trial Balance and Journal Entries

Include all adjusting entries like accruals and prepayments to ensure accuracy. This supports underlying balances before preparing formal statements.

Step 2 – Adjust Trial Balance and Post to Ledgers

Adjust entries for depreciation, taxes, and depreciation. Ensure ledgers reflect correct closing balances for each account.

Balance Sheet Preparation – How to Prepare a Financial Statement Balance Sheet

Your balance sheet preparation captures assets, liabilities, and equity as of a date.

Classify Current vs Non‑Current Items

List current assets, fixed assets, current liabilities, long‑term loans, owner’s equity, and share capital appropriately.

Ensure Balance Sheet Equation Balances

Check that Assets = Liabilities + Equity. Discrepancies often signal data or adjustment errors.

Income Statement Preparation – How to Prepare the Profit & Loss Statement

Your income statement preparation shows profitability over a period.

Recognize Revenue and Match Expenses

Record sales and costs in the same period using accrual-based accounting. Include depreciation, interest, and amortization.

Calculate Gross Profit, Operating Profit, Net Profit

Gross margin = sales minus cost of goods sold. Subtract operating expenses for net profit before tax, then net profit after tax.

Cash Flow Statement Guide – Preparing Cash Flows

The cash flow statement guide clarifies sources and uses of cash.

Operating Activities Section

Start with net profit, then adjust for non-cash items like depreciation, plus changes in working capital.

Investing and Financing Sections

Record cash used to purchase assets or cash raised via loans or capital contributions.

Statement of Changes in Equity Preparation

Show equity movements using statement of equity preparation.

Include Shareholder Contributions and Dividends

List opening equity, add profit for the period, subtract dividends, and list owner’s injections.

Reconcile Opening and Closing Equity Balances

Ensure that movements correspond to net profit and withdrawals, and tie into balance sheet equity.

Adjusting Entries and Accruals for Accuracy

Adjustments are vital under accrual principles.

Types of Adjusting Entries

Include accrued revenue, accrued expenses, prepayments, depreciation, inventory adjustments, and bad debt provisions.

Monthly vs Year-End Adjustments

Regular monthly adjustments improve accuracy, though some are only needed at year-end.

Financial Reporting Standards – Oman GAAP and IFRS

Understand relevant standards for Omani financial reporting or international context.

Oman-Specific Standards or IFRS Adoption

Companies in Oman may follow Omani GAAP or IFRS. Know which applies for accurate statement presentation.

Disclosure Requirements and Notes

Include notes describing accounting policies, significant estimates, commitments, and contingencies.

Preparing a Financial Statement in Oman

Oman-specific context for How Do You Prepare a Financial Statement in Oman.

Oman Commercial Companies Law Requirements

Omani law requires annual audited financial statements for registered companies, filed with Commercial Registry and Omani GAAP/IFRS compliance.

Audit Readiness and Filing Deadlines

After statement preparation, statements must be audited by licensed auditors in Oman and filed within specific timelines each year.

Reconciliation and Quality Checks before Finalization

Ensure financial audit readiness and avoid errors.

Perform Account Reconciliations

Reconcile bank accounts, Payables, Receivables, inventory and fixed assets schedules against ledger balances.

Check for Consistency and Reasonableness

Verify ratios, margins, year-over-year trends, and flag anomalies. Confirm arithmetic integrity across all statements.

Tips for Smooth Financial Statement Preparation

Boost accuracy and efficiency with these tips.

Use Accounting Software and Automation

Software simplifies posting, adjustments, closing, and statement generation—reducing manual errors.

Maintain Clear Documentation and Version Control

Track all supporting schedules, review logs, and adjustment records—and always label versions by date and reviewer.

Presentation and Formatting of Final Statements

Statements must be clear and professional.

Standard Statement Layouts and Sections

Use formal presentation for balance sheet, income statement, cash flow, equity changes, and associated notes.

Use of Headings, Formats, and Currency Consistency

Ensure consistent presentation, clear headings, and uniform currency symbols or unit disclosure.

Conclusion

Learning how to prepare a financial statement involves systematic steps: gathering transactions, adjusting entries, and preparing four core statements—balance sheet, income statement, cash flow statement, and equity statement. In Oman, these must comply with Omani GAAP or IFRS, meet Commercial Companies Law timelines, and be audit-ready. Key requirements like adjusting entries, reconciliations, software usage, and audit preparation are central to accuracy and credibility. For tailored help establishing robust financial reporting, or navigating Omani audit compliance, consult Business Setup Consultants in Oman—they can guide on best practices, local regulation adherence, and reliable financial controls.

FAQs

What is the first step to prepare a financial statement?

Gather your trial balance and make all adjusting entries such as accruals, prepayments, and depreciation before preparing statements.

What are the four main financial statements?

Balance sheet, income statement, cash flow statement, and statement of changes in equity.

How is end-of-period profit calculated?

Subtract cost of goods sold and expenses from revenue to get net profit before and after tax.

Are adjusting entries mandatory?

Yes. Without adjusting entries, accrual principle is violated and statements misrepresent performance.

Which accounting standards apply in Oman?

Companies typically follow Omani GAAP or IFRS, depending on size and listing status.

What disclosures must accompany statements?

Notes should describe accounting policies, estimates, commitments, contingencies, and any material risk or policy.

How do you reconcile balance sheet accounts?

Compare ledger balances against supporting schedules, like bank statements or asset registers.

What mistakes are common during preparation?

Errors include incorrect adjustments, reversed balances, mismatched currency, missing documentation, or calculation mistakes in totals.

How long should records be kept?

Financial records and statements should be archived for at least five to seven years for audit or compliance.

Can I prepare statements manually?

Yes, but using accounting software reduces error risk, saves time, and provides consistent formats for users and auditors.

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