Organizations prepare interim financial statements for various reasons. Some are required to prepare quarterly financial statements like public companies and some may prepare at various cutoff dates for internal purposes like monthly or quarterly board meetings.
Interim financial statements, like the year end financial statements, also include the following:
- Statement of Financial Position (Balance Sheet)
- Statement of Earnings (Income Statements)
- Statement of Comprehensive Income
- Statement of Cash Flows
- Statement of Changes in Owners Equity
- Notes to the Financial Statements
In the preparation of the financial statements, care should be practised in the matching of cost and expenses. Costs and expenses that will benefit more than one period (beyond the interim report) should be properly allocated. An example would be to allocate three (3) months of depreciation expense to quarterly financial statements. As for revenue and gains, they should be recognized in the period they are earned and realized or realizable.
The preparation of the interim financial statements is performed by the management. The notes to the financial statements should include a full disclosure of but not limited to the following:
- Method of accounting for various accounts presented in the face of the financial statements
- Effects of changes in market value of assets that are to be valued using the market value even if they are expected to change at year end
- Unusual surge in the financial accounts presented in the financial statements.
- Unusual economic transactions entered into by the organization during the interim period being reported to
- An estimated income tax expense for the period covered in the interim financial statements
- Contingent items and possible litigation
- Major Contractual obligations
This is just an overview of this topic. A series of detailed articles will be published covering the specific items under this topic.
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