To have an accurate picture of your business’s financial health, there are certain financial statements that are necessary. Knowing what these financial statements are and the information that they include is important for small business owners and their success. When you track these statements, you are able to make more informed decisions which can pay off in the long run. Propel Your Accounting is here to talk about the three main financial statements all small businesses should have.
Balance Sheet
The balance sheet is going to take three important pieces of information to generate a picture of what your financial health looks like at a specific period of time. These three components consist of:
– Assets: When it comes to assets, these are things that your business owns that are value. It could include cash, property, inventory, or even equipment. The assets are usually split up into current, or short term, and non-current, or long term, categories.
– Liabilities: Every business has financial obligations. These are all the unpaid bills or loans that you have that help keep your business going. The liabilities of your business are also split up into current and non-current categories.
– Equities: The equity of your business is the portion that is owned by shareholders. This number is calculated by taking the assets and subtracting the liabilities.
Income Statement
Many business owners will refer to the income statement as a profit and loss statement. There are several line items that make up this statement and help you better understand the revenue and expenses during a certain period of time. This statement can be analyzed either vertically, where the line items are expressed as percentages of gross sales, or horizontally, where you compare changes in dollar amounts over multiple periods. Here are the line items:
– Revenue
– Expenses
– Cost of Goods Sold
– Gross Profit
– Operating Income
– Income Before Taxes
– Net Income
– Earnings Per Share
– Depreciation
– EBITDA (earnings before income, taxes, depreciation, and amortization)
Cash Flow Statement
The last of the three important financial statements for small businesses is the cash flow statement. It helps you track the cash coming in and out of your business. There will be operating activities that include the cash generated by day to day operation. You will also have investing activities that shows the cash flow in relation to buying and selling assets. And finally, you will see financing activities which is cash flow from paying off debt or raising capital.
Bookkeeping, Accounting, Business Consulting & HR / Admin Services in the United States of America
If bookkeeping and accounting seems like an overwhelming part of owning a small business, you can turn to the professionals at Propel Your Accounting to help you sort it all out, keep it organized, and help you thrive. We will ensure you have the information you need to find success in your business. Let us help you with your bookkeeping, accounting, and tax preparation needs. Call us today!
