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Interim Financial Statements: What Are They and How to Make Them

Billie Anne Grigg

Billie Anne Grigg

Billie Anne Grigg has been a bookkeeper since before the turn of the century (yes, this one). She is a QuickBooks Online ProAdvisor, Xero Certified Advisor, LivePlan Expert Advisor, FreshBooks Certified Beancounter, and a Mastery Level Certified Profit First Professional. Billie Anne started Pocket Protector Bookkeeping in 2012 to provide an excellent virtual bookkeeping and managerial accounting solution for small businesses that cannot yet justify employing a full-time, in-house bookkeeping staff.
Billie Anne Grigg

Your business’s financial statements are a report card on how your business is performing. Without them, you’re left with only your instincts and your bank account balance to inform you on your business’s health. This could lead you to make costly—or even devastating—mistakes in your business decisions. But interim financial statements can help.

Especially if you follow publicly traded companies, you might have heard of “interim financial statements,” which are published with publicly traded companies’ quarterly reports. The term also appears on occasion in non-public companies, especially if a board of directors is involved or if the company is seeking investors.

You might be wondering exactly what interim financial statements are and if they apply to your business. We’ll take a closer look at what’s included in interim financial statements, how they differ from other financial statements, and how to create interim financial statements for your business.

What Are Interim Financial Statements?

Most companies create annual financial statements as part of their annual reporting. These financial statements are then given to investors and other stakeholders as an update on the business’s performance, typically on a year-over-year basis. But even if you don’t create an annual report for your business, you’re familiar with annual financial statements—your accountant uses them to prepare your tax return.

Interim financial statements cover a period of less than one year. Often, these interim statements are prepared quarterly, but they may also be prepared monthly or even once every six months.

Interim financial statements include the same basic reports as annual financial statements: a profit and loss statement, a balance sheet, and a statement of cash flows. But there are a few key differences between what’s included in interim financial statements and what’s included in annual financial statements.

But before we investigate those differences, here’s a note about the balance sheet: Technically, the balance sheet can’t be an interim financial statement, because it reflects a certain point in time rather than an extended period of time. That said, balance sheets are usually included with interim financial statements, because without it the business’s financial picture is incomplete.

interim financial statements

Interim Financial Statements vs. Annual Financial Statements

If you’ve ever worked for a publicly traded company or a nonprofit organization, you know the business must meet certain requirements for their annual financial statements to be accepted.

But when preparing your interim financial statement, you don’t need to worry about including the following requirements:

1. Physical Inventory Counts

Because it’s time-consuming and costly, physical inventory counts are typically taken only once per year. So, the inventory value for interim financial statements is calculated using a different method, like the retail inventory method.

2. Disclosures

Some companies—especially publicly traded companies—must include disclosures in their annual financial statements. These disclosures include footnotes and other explanations about the financial statements, which otherwise might not be immediately obvious from the financial statements themselves.

The purpose of disclosures is full transparency. And while interim financial statements should be transparent, they still don’t require the full disclosures that annual financial statements do.

3. An External Audit

Publicly traded companies and most nonprofits undergo an annual external audit. Unlike an IRS or other tax audit, the purpose of an external audit is to verify the accuracy of the financial statements and to examine the business’s accounting practices. But external audits can become expensive and complicated, so interim financial statements aren’t audited.

4. Certain Accruals and Other Year-End Entries

Certain entries, like accrued payroll and depreciation, are usually only calculated and adjusted annually. These accruals and other entries are excluded from interim financial statements.

interim financial statements

Do You Need an Interim Financial Statements for Your Small Business?

If you’re a small business owner with no investors, no external shareholders, and no board of directors, you might think interim financial statements don’t apply to your business. But in reality, your business can benefit from interim financial statements even more than larger businesses can—and, chances are, you already receive interim financial statements.

If you receive monthly financial statements from your bookkeeper, or if you schedule regular quarterly or mid-year reviews with your accountant, you’re already using a form of interim financial statements. These financial statements tell you how your business is performing right now, as opposed to how it performed over the course of the year.

Reviewing interim financial statements is extremely important for small businesses. Whereas large corporations can often recover from a bad year, that bad year—or even a bad quarter—can spell disaster for a smaller business. Waiting until the end of the year (or worse, the end of tax season) to review your financial statements and identify problems within your business can make those problems much more difficult, or even impossible, to overcome.

But financial statements for your small business don’t have to be perfect. In fact, you shouldn’t expect them to be, unless you’re preparing the statements to present to a potential investor or a lender. Rather, the purpose of interim financial statements for a small business is to help the business owner make managerial decisions. (That’s why interim financial statements for small businesses are often referred to as “management reports.”)

How to Make Interim Financial Statements for a Small Business

The thought of creating interim financial statements for your small business might be daunting, but it doesn’t have to be—your accounting software can do much of the heavy lifting for you.

That said, there are some steps you’ll need to take to make sure your interim financial statements are accurate:

1. Enter all your expenses.

If you’re using an accounting software with bank feed capabilities, this could be as easy as making sure your bank feeds are up to date. But if you also have bills that you pay later—like vendor bills or past-due utilities—you’ll need to enter those bills into the accounts payable section of your software before creating your interim financial statements. Make sure to use the date the bill was issued when you enter it into your accounting system, and not the current date.

2. Enter all your sales.

Resist the temptation to count all your deposits as sales income. If you use a point of sale system, use its daily report (sometimes called a Z-tape) to correctly enter your sales into your accounting software. And if you let your customers pay you later, make sure you’ve entered all their open invoices into your software’s accounts receivable section.

3. Recognize interest paid on debt.

Small business owners will often post an entire loan payment against the principal amount of the loan. But remember that a portion of each loan payment includes interest, and should be broken out separately on the financial statements.

So, review your loan statements for each month in the interim financial statement period, and make sure your interest payments have been properly recorded as expenses. The best way to check this is to reconcile your loan statement each month, making sure the principal balance on the loan statement matches the loan balance on your balance sheet.

4. Reconcile all accounts.

Complete the reconciliation process for all checking, credit card, and line of credit accounts on your balance sheet. Most accounting software will also let you reconcile loan accounts, as we mentioned in step three. Completing the reconciliation process will help you identify any duplicate or missing transactions, which would misstate your interim financial statements.

5. Set the basis for your financial statements.

Even if your business is cash-basis for tax purposes, you’ll still want to run your interim financial statements on an accrual basis. This will give you a more accurate picture of your company’s financial health: Accrual basis financials include accounts payable and accounts receivable, not just transactions that are already complete.

6. Review your balance sheet.

Take some time to review your balance sheet for anything that seems to be amiss. That could include negative balances, balances in “uncategorized asset” or “uncategorized liability” accounts, and opening balance equity.

If you have payroll in your company, make sure the payroll liabilities accounts make sense. Most accounting software won’t allow a balance sheet to be out of balance, but it does happen occasionally. Make sure your asset total and your liabilities and equity total balance.

7. Review your profit and loss statement.

Do a side-by-side comparison of the same period for the previous year. This will help you identify any anomalies, like missed or overstated expenses.

8. Check your dates.

For your interim financial statements to make sense, your profit and loss statement and statement of cash flows need to be produced using the same date range, and your balance sheet needs to be produced as of the last date of the same period.

Here’s an example: If you’re producing interim financial statements for the third quarter of 2018, your profit and loss and statement of cash flows would be produced using the date range 7/1/2018 – 9/30/2018, and your balance sheet would be produced as of 9/30/2018.

9. Print your interim financial statements.

Your interim financial statements should include the following:

  • Profit and loss or income statement: This shows your income and expenses for the period, including those that haven’t closed yet (like accounts receivable and accounts payable).
  • Statement of cash flows: The statement of cash flows reconciles your profit and loss statement to your balance sheet. It answers the question, “Why is the net profit on my P&L different from the balance in my bank account?”
  • Balance sheet: Your balance sheet shows what you own (assets and equity) and what you owe (liabilities).

If you’ll be presenting your interim financial statements to investors, lenders, or a board of directors, include a note stating that these reports are interim financial statements and are for management purposes only. This will let the recipients know that these reports haven’t undergone the same rigorous review that your annual financial statements are subject to each year.

The Best Way to Prepare Your Interim Financial Statements

Even though interim financial statements aren’t required for privately held companies, businesses of all sizes can, and should, use these statements to review their business’s performance throughout the year.

Luckily, accounting software makes interim financial statements easy to prepare. But if you need help interpreting your interim financial statements, call on your accountant or bookkeeper for assistance—they can easily handle any preliminary steps that must be followed to ensure that your interim financial statements are accurate.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.
Billie Anne Grigg

Billie Anne Grigg

Billie Anne Grigg has been a bookkeeper since before the turn of the century (yes, this one). She is a QuickBooks Online ProAdvisor, Xero Certified Advisor, LivePlan Expert Advisor, FreshBooks Certified Beancounter, and a Mastery Level Certified Profit First Professional. Billie Anne started Pocket Protector Bookkeeping in 2012 to provide an excellent virtual bookkeeping and managerial accounting solution for small businesses that cannot yet justify employing a full-time, in-house bookkeeping staff.
Billie Anne Grigg

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