Key Financial Statements

To effectively manage and grow your business, there are three financial reports you should complete and review on at least a monthly basis.

  1. Balance Sheet
  2. Income Statement (AKA Profit & Loss Statement or P&L)
  3. Statement of Cash Flows

(For corporations, there’s also the Statement of Stockholders’ Equity or Shareholders’ Equity, which I won’t cover here.)

The balance sheet summarizes the company’s financial position as of the end of a specified time period. It is often used by potential creditors to determine what a company owns as well as what it owes. Investors, management, suppliers, some customers, competitors, government agencies, and labor unions can also be interested in the balance sheet.

Unlike the balance sheet, the income statement covers a span of time. While the balance sheet is a snapshot of one date in time, the income statement covers a time span or interval. It summarizes the company’s profitability during the specified time interval. Revenues, expenses, gains, and losses are included on the income statement, but not cash receipts or disbursements.

Finally, the statement of cash flows also covers a specific time interval. It summarizes cash received and disbursed in these categories:

  1. Operating activities
  2. Investing activities
  3. Financing activities
  4. Supplemental information

A good accountant or bookkeeper will prepare and interpret these reports for you, enabling you to effectively plan for revenue growth and maximum profitability.

Download Bookkeeping Myths: Common Mistakes Small Businesses Make

Posted in Accounting Principles.