A business’s financial statements serve as a health check. With a quick glance, you’ll get a sense of profits, losses, expenses, and cash flow. How often do these reports need to be compiled, and what are interim financial statements in relation to annual statements? We’ll cover the definition below.
What are interim financial statements?
You’re probably already familiar with annual financial statements in business. Whether shown to investors or accountants, these annual accounts give detailed information about the company’s performance at the end of the reporting year. Interim financial statements show the same details, but they’re drawn up to cover a shorter period.
For example, publicly held companies issue quarterly financial statements for their investors. These cover the first, second, and third quarters of the year before the year-end financial statements show the bigger picture. However, interim statements are flexible and can be created to cover any length of time provided it’s less than one year.
Types of interim statements
Interim financial statements include the same documents you’d include with your annual reports:
One thing to note is that there isn’t any difference between an interim balance sheet and a regular balance sheet. This is because the balance sheet reflects the company’s assets and liabilities at that specific point in time.
Annual vs. interim financials
Although they contain roughly the same information, there are some major differences between interim financial statements and annual statements.
Interim statements do not require disclosures.
Accrued expenses may be calculated differently depending on the interim reporting period.
Seasonal revenues and losses are more accurately revealed on annual statements.
Inventory is usually calculated differently on an interim report, since physical counts typically only take place once a year.
An external audit only needs to take place once a year, so doesn’t apply to interim reports.
How to prepare interim financial statements
Whether you’re preparing a monthly, quarterly, or six-month report, here’s how to get started with creating your own interim financial statements.
Calculate all expenses for the period in question. Be sure to include all bills received in accounts payable, even if you haven’t paid them yet.
Enter all sales, taken from your accounting software or point of sale system. Be sure to include open invoices in your accounts receivable.
Review loan statements to calculate interest paid for the interim financial statement period, reporting all payments as expenses.
Go over your interim balance sheet to reconcile all accounts. Keep an eye out for any missing transactions or duplicates.
Review your three main documents, including the balance sheet, income statement, and cash flow statement. It’s helpful to compare each one to the same document from the previous year, which helps flag any missed expenses. Be sure that assets equal the total of liabilities and equity, according to the accounting equation.
Print and present your statements. Interim reports are typically presented to stakeholders including lenders, directors, and investors. The interim financials should clearly show the dates at the top and state that they are interim reports rather than annual statements.
Does your business need an interim statement?
Interim financial statements are a requirement for publicly held companies, but what about small businesses? If you don’t have any external shareholders or investors, do you really need to produce these reports? Although it’s not required, there are still a few reasons why you might want to consider creating more frequent financial statements.
Creating and reviewing financial statements on a monthly or quarterly basis gives you greater opportunity to discover and fix bookkeeping errors. It also lets you keep a close eye on cash flow each month, identifying any areas that could use improvement. By tracking business performance carefully, you’ll make more informed decisions to spark growth.
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