H o w t o R e v i e w F i n a n c i a l S t a t e m e n t s l i k e a F i na nc e K n o w - i t - A l l ( e v e n i f youre a Finance Not-at-All) W e s e e a l o t o f ug l y f i n a n c i a l s t a t e m e nt s .

N o t ug l y i n t he s e ns e t ha t t he W e s u s p e c t t he r e

b us i ne s s i s p e r f o r m i n g p o o r l y ( w e l l , w e s e e s o m e o f t ho s e t o o ! ) b ut ug l y i n t he s e ns e t ha t t he y c o nt a i n g l a r i ng b o o k ke e p i ng e r r o r s . a r e s e v e r a l r e a s o ns f o r t hi s . O ne i s t he p r o l i fe r a t i o n o f s o ft w a r e t h a t m a ke s d o i ng t he b o o k s y o u r s e l f a t t a i na b l e fo r a l m o s t a n yo ne w i t h b a s i c c o m p ut e r s k i l l s . A ns w e r a f e w i nt e r a c t i ve q u e s t i o n s , c ho o s e f r o m t he d r o p d o w n l i s t o f i nd us t r y c ho i c e s a nd y o u ' r e o f f a nd r u n ni ng w i t h yo u r ve r y o w n i n c o m e s t a t e m e nt . T he P r e s s a f e w m o r e b ut t o ns , a nd vo i l a , i ns t a nt b a l a n c e s he e t . m a n y b u s i ne s s o w ne r s o nl y c o ns ul t a c c o u nt i n g W hi l e w e ' r e

o t he r r e a s o n i s t h a t

p r o f e s s i o n a l s a t y e a r - e nd t o fi g ur e o ut h o w t o r e d uc e t a xe s . ne c e s s a r y ) , t hi s a p p r o a c h c a n c o s t d e a r l y i n t he l o n g r u n . l o ng t o t a k e p r o a c t i v e s t e p s .

us ua l l y a l l f o r s a v i n g m o n e y ( a nd p a yi n g no m o r e t a xe s t h a n a b s o l ut e l y First of all, if y o u ' r e w a i t i ng unt i l y e a r - e nd t o d o t a x p l a n ni ng , yo u m i g ht b e w a i t i ng t o o I n a d d i t i o n, b o o kke e p i ng m i s t a ke s c a n l e a d yo u t o m a k e c o s t l y , i r r e v e r s i b l e b u s i ne s s d e c i s i o ns b a s e d o n b a d i nfo r m a t i o n . A nd f i na l l y , m o s t b u s i ne s s o w ne r s , i f t h e y' r e no t d o i ng t he b o o k ke e p i ng t he m s e l v e s , a r e m o s t l i k e l y i n t he d i f fi c ul t p o s i t i o n o f h a vi ng t o hi r e , t r a i n , a nd t he n m a n a g e a p e r s o n i n a p o s i t i o n a b o ut w hi c h t he y t he m s e l ve s m i g ht ha v e l i t t l e o r no k no w l e d g e . N o t a n i d e a l s i t u a t i o n . s ho ul d b e l o o k i ng f o r ( o r a t ) . H e r e , i s a b r i e f p r i m e r f o r t he fi na nc i a l no t - a t - a l l b u s i ne s s o w n e r o n ho w t o r e v i e w s t a t e m e nt s t o he l p determine if t he y a r e , at t he very least, an a c c ur a t e r e f l e c t i o n o n w h a t ' s ha p p e ni ng i n yo u r b u s i ne s s : T he n, p e r i o d i c a l l y , yo u g e t t o r e v i e w t he o ut p ut o f t hi s p e r s o n, a g a i n no t r e a l l y k no w i ng w ha t yo u

Balance Sheet A r e t he r e a ny u nu s ua l b a l a n c e s , s uc h a s :

Negative s ho ul d

a m o unt s

( o nl y

a c c um ul a t e d be

depreciation

&

amortization ne g a t i ve )

N e g a t i v e c a s h s ho ul d b e i n t he fo r m o f a no t e p a y a b l e ( o r b a n k overdraft) on t he liabilities side

In v e nt o r y a m o u nt s ho ul d va r y fr o m m o nt h - t o - m o nt h a c c o r d i ng t o a c t u a l i n v e nt o r y l e v e l s ( i f i nve nt o r y i s o f f, t he n yo ur c o s t o f g o o d s , ne t profit a nd r e t a i ne d e a r ni ng a m o u nt s will be off as well.)

A c c o u nt s r e c e i v a b l e s ho ul d h a ve a b a l a nc e ( a s s u m i n g yo u s e l l o n a c c o u nt )

A c c o u nt s p a y a b l e m o nt h

s ho ul d h a ve a p o s i t i ve b a l a nc e ( u nl e s s i n t he e nd )

u nl i k e l y e v e nt t h a t y o u ' ve p a i d o f f e ve r y o ne o f yo ur s up p l i e r s b y

Income Statement

Sales

and

cost

of

goods

sold

detailed

fo r

each

category

S a l e s s ho ul d b e g r e a t e r t h a n c o s t o f g o o d s s o l d fo r e a c h c a t e g o r y

C o s t o f g o o d s s ho ul d v a r y e ve r y m o nt h t o r e fl e c t a c t u a l e xp e n s e , no t estimate

E s t i m a t e d d e p r e c i a t i o n s ho ul d b e e nt e r e d m o nt hl y , a nd t he n r e c o nc i l e d to a c t ua l a m o u nt at e nd of ye a r

Overall Look

I nc o m e S t a t e m e nt e x p e ns e s s ho ul d b e g r o up e d b y e xp e ns e c a t e g o r y , for example: sales & a d ve r t i s i n g e xp e ns e s , e m p l o ye e e x p e ns e s , g e ne r a l a nd a d m i ni s t r a t i ve , a nd no t j u s t l i s t e d b y a l p ha b e t i c a l o r d e r .

A d d a c o l um n t h a t s h o w s e x p e ns e s a s a p e r c e nt a g e o f s a l e s , a l o ng w i t h y e a r - t o - d a t e a nd y e a r - t o - d a t e f r o m p r i o r ye a r s o yo u c a n s e e t r e nd s a nd d e t e r m i ne r e a l c h a ng e s i n yo ur e xp e ns e s , no t j us t c ha ng e s d ue t o sales increases or decreases.

And finally: B e c ur i o us , d o n' t b e a f r a i d t o a s k q ue s t i o ns , a nd i f i t d o e s n' t s e e m r i g ht t o y o u , g e t t o t he b o t t o m o f i t ! I f yo u ( o r w ho e ve r yo u us e t o d o yo ur b o o ks ) c a n' t p r o d uc e b o t h a n a c c u r a t e p r o fi t a n d l o s s a nd a b a l a n c e s he e t o n a m o nt hl y basis, t hi n k a b o ut o ut s o u r c i ng or up g r a d i ng yo ur b o o k ke e p i ng s e r v i c e s . A nd i f y o ur a c c o u nt i ng p r o fe s s i o n a l i s n' t a va i l a b l e fo r l a r g e p o r t i o ns o f t he y e a r d ue t o t a x w o r k o r i s n ' t c a p a b l e o f p r o vi d i ng t hi s t y p e o f a d vi c e , f i nd o ne w ho i s . W e p r o m i s e t he y' r e o ut t h e r e .

Source:

http://biznik.com/articles/how-to-review-financial-statements-like-a-finance-

knowitall-even-if-youre-a-finance-notatall