What are financial Statements?

What are financial Statements?

 

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Description automatically generated with medium confidenceFinancial statements are written records that convey the business activities and the financial performance of a company. Financial statements are often audited by government agencies, accountants, firms, etc. to ensure accuracy and for tax, financing, or investing purposes. Financial statements include:

  • Balance sheet
  • Income statement
  • Cash flow statement

 

Why do you need financial Statements?

Financial Statements will tell you the health of your business.  There are several different Financial Statements just to name a few, there is:

  1. Profit & Loss (P&L) Statement also known as the Income Statement (Most important statement regarding your business, is your).
  2. The Balance Sheet,
  3. The Cash Flow Statement.

Now there are more than then three, but these three are the most common and important ones that a business will have.

 

Your P&L

This is the statement that shows your:

Sales – Cost of Goods Sold = Revenue

Then we take your:

Revenue – Expenses = Net Profit or Loss

Your Sales are what you receive for a product or service that you sell. Cost of Goods Sold is the product you buy to resell, materials to build a product, and/or subcontractors.  Basically, what it takes to get your sales.  Expenses are all other expenses (advertisement, auto expense, bank fees, wages, utilities, rent, etc.)

Your Balance Sheet

This statement will tell you your Assets!!

Assets = Liabilities + Owners Equity in your business.

Your Assets are your bank accounts, accounts receivable, loans owed to you and property owned.  Liabilities are your credit cards, loans you owe, accounts payable, payables to payroll taxes, and sales tax. Owners’ Equity is how much you have invested in your business, your owners draw, retained earnings and your net profit/loss.

Cash Flow Statement

In lames terms it is: How much money you spent and where you got the money. It is important to see how much money is being spent on specific things and see if it can be improved.

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Description automatically generatedMan, that was long and boring I know, but it is important to understand the three basic statements that are commonly seen with businesses. Reviewing these Financial Statements on a regular basis will help you understand the health of your business.  Are you spending too much money?  Are your sales on point, or do you need to increase them?  How much debt do you have?  Getting the answers to these questions, will help you and your accountant to create a plan for your financial freedom. 

If you need some help, schedule an appointment with us, and we can get your started on the right path.