A BUSINESS OWNER’S GUIDE TO FINANCIAL STATEMENTS

A good way to know the financial status of any company is through their financial statement. A company’s financial statement provides financial information to investors and creditors in order to assess their overall financial status. Moreover, the company’s management uses it in order to determine whether they are on track of the company’s goal. Most entrepreneurs may leave these matters to a hired accounting firm or to an accountant. But there are essential things about financial statements that all owners must know.

 

THE THREE FINANCIAL STATEMENTS. 

 

1. Balance Sheet 

A balance sheet is a list of assets, liabilities, and owner’s equity over a specific period of time (e.g. month, quarter, or year).

 

Assets are economic resources. Simply put, they are things that a company owns that have value and could be sold. They could be tangible objects such as vehicles, equipment, accounts receivable, and inventory. Likewise, intangible objects could also serve as assets such as patents and trademarks.

 

Liabilities, on the other hand, are amounts your business owes to others. Examples of which are loans, 

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accounts payable, wages, and mortgages.

 

Owner’s equity is the owner’s capital or net worth. It is the amount left when the owner sold his assets and paid off his liabilities.

 

2. Income statement
The income statement shows your revenue over a specific period of time and the total cost that was spent in order to yield that revenue. It is a summary of what the business has gained and lost over the period.

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 3. Cash flow statement

The cash flow statement, often referred to as the statement of cash flows, reports the cash generated and used during a certain time. This statement reports the following:

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Cash flow from operating activities- cash from the company’s core activities (e.g. manufacturing, marketing, selling)

 

Cash flow from investing activities- cash from investments (e.g. investments on financial markets or operations)

 

Cash flow from financing activities- cash from transactions between creditors and/or investors used to fund the company.

 

Supplemental information- reports the exchange of significant items that did not involve cash and reports the amount of income taxes paid as well as interest paid.