The key components of the financial statements are the income statement, balance sheet, and statement of cash flows. These statements are designed to be taken as a whole, to present a complete picture of the financial condition and results of a business.
A financial statement shows you where a company’s money came from, where it went and where it is now. There are many kinds of financial statements. Here are three common statements small businesses use:
3.Cash flow statement
The balance sheet gives a snapshot of your financial health for a specific period. You record assets, liabilities, and equity on the balance sheet. By looking at the balance sheet, you can see the net value of your business.
The accounting equation being expressed is assets = liabilities + shareholders’ equity. Assets are often listed on the left hand side of a balance sheet with liabilities and shareholders’ equity on the right.
Assets are things of value owned by a company, which can be converted into cash or is already cash and liabilities are the amounts of money the company owes to others, also known as debts.
Measures performance over time you record revenue, expenses, and net profit on the income statement. This statement tracks your business’s profitability.
Its basic formula is Net income = Revenues + Gains – Expenses + Losses. Revenue and gains report on all the income during a period of time. An example would be if you own a motor shop and sell car parts primarily while also offering a service of repairs you’ll gain interest on all the money in your bank account.
Expenses and losses report all the outgoings during a period of time. An example of expenditure at your motor shop would include office equipment, salaries for employees, cost of advertising and a loss would be one that you made from a lawsuit.
Cash flow statement
Shows how well you manage money. It reports incoming and outgoing cash as you receive payments from sales of goods and services and make purchases or payments to employers. Use the cash flow statement to make sure you’ve enough money on-hand to operate. A cash flow statement can tell you whether the company actually generated or lost cash during a period