If you’re in business, it’s likely that you’ll need to understand and prepare financial statements. Financial statements are required by law and other businesses, so you can’t get away without them. But what are the right documents for your industry? We’ll talk about the balance sheet, income statement, cash flow statement and how each of these documents can be used.
Balance sheet
The balance sheet is a snapshot of the company’s financial position at a given point in time. It shows the company’s assets, liabilities and equity. Assets are things that provide future benefit to the business such as cash and inventory; liabilities are debts or obligations owed by the business such as accounts payable; equity represents owners’ investment in their company after deducting all its liabilities from its assets
Income statement
- The income statement is a summary of revenue and expenses for a specific period. It shows the company’s profitability and therefore, it’s also called the profit and loss statement (P&L).
- An income statement starts with revenues from selling products or services and then deducts costs associated with those sales such as cost of goods sold (COGS), operating expenses, taxes, etc., to determine net income or net loss for the period.
Cash flow statement
Cash flow statement is a financial statement that shows how much cash is generated, spent and retained by a business over a period of time. It is often used to evaluate the performance of a business by providing an insight into its ability to generate profits from its assets.
The cash flow statement consists of three main sections: operating activities, investing activities and financing activities. The operating section shows how much cash was generated from sales; investing section reveals how much money was spent on buying new assets or making capital improvements; while financing section shows where funds were obtained from lenders or investors willing to lend money at interest rates higher than what could be earned through investments in securities markets (e.g., bonds).
It’s important to have the right financial statements for your industry.
The right financial statements are essential for any business. They are used to measure the performance of a company, make decisions and communicate with stakeholders.
It’s important to have the right financial statements for your industry. Make sure you do your research and get advice from experts before choosing which type of statement is best for your business.
