In today’s dynamic business environment there are various business practices arising with new and dynamic business processes. Thus to understand the position of business and to know the end result of business regarding profitability and efficiency it is very much important to have a reliable statement or process which shows business position at any given point of time.
What Is Personal Financial Statement?
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Personal Financial Statement is a statement which shows the position of the business at any given point of time. Generally these statements are prepared for one financial year that is twelve months. It can be for shorter duration also as per the convenience of the user and depending on the purpose for which the financial statements are prepared. These statements are generally used at the time of availing credit facilities from financial institutions. The personal Financial Statement can be prepared in normal spreadsheet such as Microsoft Excel.
Components/Contents Of Personal Financial Statements
Usually Personal Financial Statements contain a Balance Sheet and Income statement/Statement of Profit and Loss. There is no proposed format which is mandatory to follow in personal financial statement unlike other statements prepared by companies or other body corporates. Balance Sheet has two parts- Liability and Asset. Liability side shows information such as capital invested by proprietor, credit availed form financial and non-financial institutions, sundry payables in respect to business done etc. whereas Asset side shows information such as Assets owned by the owner, investments done, information of cash and bank balance available, sundry receivables in respect to business done etc.
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Income Statement or Statement of Profit and loss shows information such as Sale of Goods done or Services rendered by the individual and any other income received by the individual on the right side. On the left side it shows any purchase done or services received and expenses related to the same. Balance Sheet shows the distribution of funds whereas Income Statement/Statement of Profit and Loss shows the position/profit earned by the business.
Steps For Preparing Personal Financial Statements
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- Determine the purpose for which the financial statements are prepared such as settling tax disputes, year end results etc.
- Gather the information relating to the nature of business such as cash and bank transactions, vouchers, invoices etc.
- Prepare Statement of Profit and Loss/Income Statement showing the performance of the business.
- Prepare Balance Sheet showing various Assets and Liabilities such as capital invested, Borrowings, Fixed as well as Currents assets including cash and bank balance along with value of inventories if any.
- Analyze the Financial Statements prepared for achieving the pre-decided purpose.
- Take corrective measures required if any.
Purpose Of Preparing Personal Financial Statements
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- Personal Financial Statements are used at the time of availing credits from financial institutions.
- Personal Financial Statements are prepared to keep moral check on the persons associated with the business.
- These statements are helpful for detecting wastages and losses pertaining in the business organization which are generally not detected in regular course of business.
- These statements are useful for settling Tax liabilities at the year end.
- These are also used to know the correct business results as to profit or loss.
All in all one can conclude that a Personal Financial Statement is useful for monetary as well as non-monetary business conclusions and analysis.