Your company’s financial statements are a report card on how well it is doing. Without them, you’re left with only your intuition and your bank account balance to guide you through the accounting of your firm. This could cause you to make costly—or even disastrous—business decisions. However, interim financial statements can be useful.
If you follow publicly traded corporations, you’ve probably heard of “interim financial statements,” which are published alongside quarterly reports. The phrase is also used in non-public companies on occasion. This is especially when a board of directors is engaged or the company is looking for investors.
You may be wondering what an interim financial statement is and whether they apply to your company. We’ll look at what interim financial statements include, how they differ from other financial statements, and how to construct interim financial statements for your company.
Interim Financial Statements: What Are They?
An interim financial statement, also known as an interim financial report, is an accounting financial statement that covers a company’s operations over a period of less than one fiscal year. Companies might prepare interim reports on a monthly, quarterly, semi-annual, or annual basis.
These interim financial statements provide a snapshot of the company’s financial position prior to the end of the reporting cycle. You can use these continuous reports as a small business owner to assist identify current cash flows and financial performance throughout the tax year.
Annual financial statements are accounting papers created at the conclusion of the fiscal year. They include the income statement, balance sheet, or cash flow statement, and are not considered interim financial statements.
What Does Interim Mean?
The interval between fixed periods is referred to as interim. It is the time between these scheduled reporting periods in the context of accounting cycles. In contrast to annual financial statements, which are generated at the end of the fiscal year, interim statements are generated at any time before the end of the reporting period.
Interim Report Example
To establish their present financial health, most businesses will produce quarterly reports. These quarterly reports are essentially interim reports. So, another sort of interim statement is a progress report. Interim financial statements include loan statements and supplier bills created in the middle of an accounting quarter.
Why Do Companies Produce Interim Reports?
Interim reports help a corporation in a variety of ways. For starters, they provide significant insight into the financial success of the company. Reading financial statements provides business owners and managers with a thorough insight into their financial situation. Interim statements provide this insight at any moment, which can assist in monitoring performance and improving revenue generation and cash flow in order to successfully grow the company.
Second, giving interim statements to shareholders, or individuals with a stake in your firm, can boost your company’s credibility and ensure future investments. When firms create these statements for themselves, they should also disclose them to any company shareholders. Because these shareholders have an interest in the company, they should have access to its financial information. So, reliable quarterly reports can boost stakeholder confidence in the organization and total investment capital.
Finally, certain legal obligations may force corporations to submit interim reports to government organizations and the public at monthly intervals during the fiscal year. Such interim financial statements, in addition to the yearly financial statements, maybe mandated by local authorities, therefore it is critical that you understand what is expected of your company.
What Does an Interim Financial Statement Contain?
The International Financial Reporting Standards Foundation (IFRS) is an independent organization that has created global accounting process standardization. They have established interim financial reporting standards that businesses can use to create these financial statements.
In general, interim reporting should adhere to the same rules as yearly reporting. Three major statements should be included in interim financial reporting:
- Cash flow statement.
- Profit and loss statement
- The balance sheet
The report should also include any additional follow-up information about dividends, stocks, and financial evidence or summaries. Businesses can also customize their reports for a variety of goals, such as educating potential stakeholders and investors, consulting tax and accounting professionals, or improving internal processes.
How to Prepare Interim Financial Statements for a Small Company
Making interim statements for your small business may seem onerous, but it doesn’t have to be—your accounting software can perform a lot of the heavy jobs for you.
However, there are some actions you must take to ensure the accuracy of your interim financial statements:
#1. List all of your expenses.
If you’re using accounting software that supports bank feeds, this might be as simple as ensuring your bank feeds are up to date. However, if you have invoices that you pay later, such as vendor bills or past-due utilities, you must enter those bills into your software’s accounts payable section before preparing your interim financial statements. When entering the bill into your accounting system, make sure to use the date it was issued rather than the current date.
#2. List all of your sales.
Resist the urge to record all of your deposits as sales income. If you utilize a POS system, use its daily report (also known as a Z-tape) to accurately enter your sales into your accounting software. If you allow your customers to pay you later, ensure sure you’ve put all of their open invoices into your accounting software’s accounts receivable section.
#3. Recognize debt interest paid.
Small business owners may frequently post an entire loan payment against the loan’s principal amount. However, keep in mind that a component of each loan payment contains interest. This should be shown separately on the financial statements.
So, for each month of the interim financial statement period, go over your loan statements to ensure that your interest payments have been appropriately recorded as expenses. The best approach to do this is to reconcile your loan statement each month, ensuring that the principal balance on the loan statement corresponds to the loan balance on your balance sheet.
#4. Balance all accounts.
Complete the reconciliation process for all of your balance sheet’s checking, credit card, and line of credit accounts. As we indicated in step three, most accounting software will allow you to reconcile loan accounts. Completing the reconciliation procedure will assist you in identifying any duplicate or missing transactions that might cause your interim financial statements to be incorrect.
#5. Determine the foundation for your financial statements.
Even if your company is cash-based for tax purposes, you should nevertheless prepare interim financial statements on an accrual basis. This will provide you with a more realistic picture of your business’s financial health. Accounts payable and receivable are included in accrual basis financials, not only completed transactions.
#6. Check your balance sheet.
Take some time to go over your balance sheet and look for any discrepancies. Negative balances, balances in “uncategorized asset” or “uncategorized liability” accounts, and opening balance equity are all examples.
If your organization has payroll, ensure sure the payroll liabilities accounts make sense. Most accounting software will not enable an out-of-balance balance sheet, but it does happen on occasion. Check your asset total, liabilities total, and equity total balance.
#7. Go over your profit and loss statement again.
Compare the current period to the same period the prior year. This will assist you in identifying any irregularities, such as missed or inflated expenses.
#8. Double-check your dates.
For your interim financial statements to make sense, your profit and loss statement and statement of cash flows must be generated using the same date range. Also, your balance sheet must be produced as of the last date of the same period.
As an example, if you’re preparing interim financial statements for the third quarter of 2018, your profit and loss statement and statement of cash flows would be based on the dates 7/1/2018 – 9/30/2018, and your balance sheet would be based on 9/30/2018.
#9. Create and print your interim financial statements.
The following items should be included in your interim financial statements:
- Profit and loss statement or income statement: This indicates your income and expenses for the period, including those that have not yet closed (like accounts receivable and accounts payable).
- The statement of cash flows reconciles your profit and loss statement with your balance sheet. It answers the question, “Why is my net profit on my P&L different from my bank account balance?”
- The balance sheet indicates what you own (assets and equity) and what you owe (liabilities).
If you’re going to give your interim financial statements to investors, lenders, or a board of directors, include a note noting that they are interim financial statements and are exclusively for management. This will inform the recipients that these reports have not been subjected to the same rigorous scrutiny that your yearly financial statements are subjected to each year.
Example of Interim Financial Statements: Quarterly Reports
The quarterly report is perhaps the most popular interim statement. A quarterly report is a summary or compilation of unaudited financial statements published by corporations every quarter, such as balance sheets, income statements, and cash flow statements (three months). These statements may give year-to-date and comparative (e.g., previous year’s quarter versus this year’s quarter) results in addition to quarterly numbers. The Securities and Exchange Commission requires publicly traded corporations to file their reports. This document, known as a 10-Q, does not include all of the detailed information that the annual report (known as a 10-K) includes, such as background and operations details.
The SEC now requires investment firms that handle more than $100 million to make quarterly reports on Form 13F.
Most businesses have an accounting cycle that finishes on December 31 and quarters that end on March 31, June 30, September 30, and December 31. Quarterly reports are normally filed within a few weeks following the conclusion of the fiscal quarter.
Is It Necessary For My Company To Produce an Interim Report?
Depending on the form of your business, provincial rules and regulations, and the accounting policy of your company, you may be legally compelled to produce quarterly reports for government organizations and the general public. Typically, incorporated enterprises are required by the government to generate interim financial reports for stakeholders, the public, and tax purposes.
Companies with stakeholders should constantly offer interim reports to their shareholders to ensure they understand their investments as well as the cash flows and accounting procedures of the business. Even in the absence of stakeholders, organizations can produce an interim financial report for internal use. When selecting whether or not to generate these documents, you must examine these aspects.
Conclusion
Even though interim financial statements are not required for privately-owned companies, businesses of all sizes can and should utilize them—along with related ones such as common-size analysis—to analyze their company’s performance throughout the year.
Fortunately, accounting software makes preparing interim financial statements simple. However, if you need assistance understanding your interim financial statements, contact your accountant or bookkeeper. They can readily handle any preliminary actions that must be taken to assure the accuracy of your interim financial statements.
Interim Financial Statements FAQs
What is interim period in accounting?
A financial reporting period that is less than a full financial year (most typically a quarter or half-year).
What is interim report accounting?
Interim reporting is the publication of financial results for any time shorter than a fiscal year. Interim reporting is usually required of any publicly traded firm, and it usually entails the issuance of three quarterly financial statements each year.
Is it required to prepare interim financial statements?
In order for a company’s annual financial statements to comply with IFRS Standards, interim financial statements are not required. Local rules and regulations, on the other hand, may mandate a company to prepare interim financial statements and also specify the frequency — for example, quarterly or half-yearly.
