The Role Of The Financial Statements For SMEs in Dubai in Uncertain Times
Though people say Dubai is a tax haven or there are no taxes. True but very few people realise the fixed administrative cost is very high. Hence keeping watch on your cash flows and profit and loss account is very important especially during times of economic uncertainties, you need the right tools that will let your business sail ahead, and the financial statement is one such tool. Businesses in a post-pandemic world need to adhere to the basics of accounting with financial statements serving as the financial dashboard of your business. As one of the best accounting & bookkeeping firms in Dubai, we suggest you give more importance to the financial statements.
Financial statements like balance sheets, income statements, cash flow statements and statements of owner’s equity tell you where your money is going, where it’s coming from, and how much you’ve got to operate your business. Accurate financial statements are a must for making smart business moves and are necessary if you want to get a loan or attract investors.
In this article, we will guide you through the basics of each financial statement, and how to make use of them to run your business like a well-oiled machine. If you’re looking for an insightful intro to financial statements, read on.
The Statement of Cash Flows
The cash flow statement gains prominence as it provides you with an overview of your company’s overall liquidity. The cash flow statement tells you where the cash has gone in terms of your business operations. The number of categories included in the statement of cash flow may slightly vary depending upon the size of the business.
The categories of the statements of cash flow are financing activities, investing activities, operating activities, and supplemental information listed on the statement of cash flow. The basic objective of a cash flow statement is to help entrepreneurs figure out where cash is coming in from and where it is moving out. It’s a piece of valuable information that every business needs to identify whether it is spending more money than being generated.
The Statement of Profit or Loss & Comprehensive Income
The Statement of Profit or Loss & Comprehensive Income provides details on the revenue earned by the company and the expenses involved. In short, it shows your company’s net loss or net income. The income statement represents a granular view of the company’s operations by providing the direct, indirect and capital expenses incurred by the company.
In an income statement, the direct expense is grouped into the cost of goods sold or the cost of sales that represents the direct wholesale costs. You can subtract the cost of sales from the revenue to determine the gross profit margin. Indirect expenses are another vital category of the income statement which shows all the costs indirectly associated with the revenue-generating activities of a firm such as salaries, general and administrative expenses, research and development, and depreciation.
The capital expenses form the third and final category of the income statements. These types of expenses include interest, tax, and extraordinary items. The subtraction of these items will give you the bottom-line net income or the total amount of earnings your company has generated. Consult with the best accounting firms in Dubai to ensure that your company’s income statements are properly prepared.
The Statement of Owner’s Equity
There are chances for changes to be made to the equity of the company owner over a period of time. The statement of owner’s equity is an important, yet often underrated, a financial statement that reveals details about the changes to the owner’s capital account over a certain period. It includes details such as:
The opening balance of the owner’s capital account
Increases to equity from profits or additional capital contributions
Decreases to equity from losses or capital distributions
The movement in the current accounts of the shareholder like withdrawals or contribution to the working capital
The closing balance of the owner’s capital account
Legal structures such as a sole proprietorship (Sole Establishment ) use the term Owner’s equity. In other business structures such as an LLC, the preferred term is shareholder’s equity. You should also note that the owner’s equity is not an asset because technically it is an asset of the business owner and the liability of the business.
The Balance Sheet
The balance sheet presents a snapshot of your company’s finances as it currently stands. It encapsulates details about the assets you own, and liabilities (i.e., debts) you owe, at a particular point in time. A standard balance sheet comprises three general categories: assets, liabilities, and equity.
The frequency of preparing a balance sheet depends upon the nature of your business. Some businesses will have to make daily or monthly financial statements, and some others prepare the statements quarterly, and some only get an audited balance sheet once a year. For instance, banks move a lot of money, so they prepare a balance sheet every day. On the other hand, a small shop might only get a balance sheet every three months.
A balance sheet empowers a business owner or manager to establish the company’s most important ratios such as solvency versus liquidity that are particularly important for debt management, current, and liquidity ratio to see the working capital movements. The balance sheet also makes it easier to understand if the business can cover the cost of bills, distribute dividends, obtain more capital, needs a focus on the recovery of receivables, etc.
How Can Jitendra Chartered Accountants Help You?
By meticulously gathering data and crunching the numbers, you can prepare your own financial statements. However, you are an entrepreneur who cannot afford to hunched over a calculator/computer every night. That’s where experienced accounting & bookkeeping firms in Dubai such as Jitendra Chartered Accountants (JCA) come in handy.
JCA can prepare your financial statements accurately, so you can make smart financial decisions without all the exhausting paperwork and JCA is listed with all free zones and banks where you are required to submit your audited financial statements every year. Plus, when it’s time to file your VAT returns, you’ll know your financials are comprehensive and correct, with JCA’s help as at the time of filing the VAT Returns you need to make sure that the sales/turnover as per the VAT return are in line with your books of accounts / financial statements. Get started with JCA to experience the best accounting and auditing services in Dubai.