Zemam Academy

How do I prepare financial statements?

There are four core financial statements, produced via the accounting cycle — an ordered sequence of steps from operation to final statement. We'll cover the four statements first (what each measures), then the five steps that produce them — from recording entries to the finished statements. And at the end: how an accounting system collapses most of those steps.

The four financial statements

Income statement

Performance over a period: revenue − expenses = net profit. Answers: did I profit or lose?

Balance sheet

Financial position at a moment: assets = liabilities + equity. Answers: what do I own and owe?

Cash flow statement

Actual cash movement across three activities: operating, investing, financing. Answers: where did the cash go?

Statement of changes in equity

The owners' stake movement: capital, retained earnings, the period's profit, and drawings. Answers: how did my stake change?

The accounting cycle: 5 steps that produce the statements

1
Record operations as journal entries
Each operation (sale, purchase, expense, collection) is recorded as a double entry — debit and credit — from source documents.
Journal entry vs. ledger ←
2
Post to the ledger
Entries are grouped in the ledger per account, producing each account's balance.
How they connect ←
3
Produce the trial balance
Collect all account balances and confirm total debits = total credits. If they don't match, there's an error to fix.
How to produce a trial balance ←
4
Make the adjusting entries
Before the statements: depreciation, accrued and prepaid expenses, provisions, and inventory valuation — so the balances reflect the period correctly.
5
Prepare the four statements, in order
From the adjusted balances: income statement first (for net profit) ← changes in equity ← balance sheet ← cash flow. The income statement is first because net profit flows into equity.
Why this order? ←

The shortcut: how a system does this by itself

By hand

1. Write every entry by hand

2. Post to each account

3. Compile the trial balance

4. Make the adjustments

5. Prepare 4 statements by hand

In a double-entry system

1. Record the operation (or it's auto-generated)

↓

The four statements appear automatically from the ledger

Steps 2–5 happen by themselves — for any period or date, IFRS-compliant.

Frequently asked questions

What are the core financial statements?

Four: the income statement (performance), the balance sheet (position), the cash flow statement (cash movement), and the statement of changes in equity (owners' stake). Plus the notes that explain their details.

Must I prepare them in this order?

For preparation, yes — each step depends on the previous one (entries ← ledger ← trial balance ← statements), and the income statement must precede the balance sheet because net profit flows into equity. The official presentation order is a separate convention.

Can I do this in Excel?

For a very small operation, possibly — but it's manual and error-prone: any missing entry or misclassification breaks the trial balance and produces wrong statements, with no audit trail. For any real-scale business, a double-entry accounting system is safer and faster.

How does Zemam produce the statements?

Automatically. You record the operation (or it's generated from invoices and payments), and the system posts, produces the trial balance, and generates the four statements from the ledger — IFRS-compliant, for any period or date — with no manual carry-forward or closing entry. Steps 2–5 happen by themselves.