Accounting Basics: Income Statement, Balance Sheet and Statement of Cash Flows
Your financial statements provide all of the performance metrics you need to successfully improve your small business operations. When you optimize your operations, you give your company a solid chance of continued profit growth through the years. To generate and utilize the performance reports you need, you must understand the finer nuances of the three most important financial documents, the income statement, balance sheet and statement of cash flows. Once you have a working knowledge of these accounting basics, you can forge ahead with your company growth strategies to improve the success of your small business in Missouri.
An income statement, or profit and loss statement, provides a clear overview of your company’s revenues and expenses. The statement shows the total profits or loss metrics for the measured time period. To create this statement, you add up your primary and secondary revenues, and then subtract all of your expenses to reveal your net income.
To closely monitor the success of your business, you should generate income statements on a monthly, quarterly and yearly basis. The income statement is beneficial to have on hand for use by investors and lenders as you seek funding for product development, equipment purchases or general company growth.
A balance sheet weighs your assets against your liabilities to accurately show your company’s financial standing on a monthly, quarterly or yearly basis. To find your asset numbers, you must add up the liquidity value of your equipment, materials, inventory and securities. Do not forget to add the combined value of your savings and checking accounts to these asset numbers. Calculate your liabilities by adding up your debt, current unpaid bills, taxes, open invoices and payroll numbers. Subtract your liabilities from your assets to complete the balance sheet calculations.
A company in good financial health will show greater assets than liabilities at every point in the year. When your company remains in good financial standing over the long term, it is easier to attract valuable financing opportunities for expansion of your operations.
Statement of Cash Flows
A statement of cash flows reveals the cash received and utilized by your company during a certain time period. As with the other documents, the statement of cash flows can be produced for a certain month, quarter or year. To create this statement, you list and add up cash flow numbers from your daily operations, stocks and bonds, investments and other financial activities pertaining to your small business. The cash flow statement is used in tandem with the income statement and balance sheet, of the same time period, to explore the financial health of your company.
Establishing a Financial Plan
You can have these documents generated on a regular schedule by enlisting the services provided by the professionals at accountRely in St. Louis, MO. You will receive monthly, quarterly and yearly income statements, balance sheets and statement of cash flows that can help you gauge the performance of your small business.