A Beginner’s Guide to the “Big Three”: Financial Statements. The basics regarding income statements, balance sheets, and statements of cash flows. Has it been awhile since your last accounting course?
The professional of Behm Bookkeeping are here to refresh your memory on the “Big Three” financial documents – the income statement, balance sheet, and statement of cash flows. A thorough understanding of these three documents will allow you to analyze the efficiency and effectiveness of your business. Income StatementThe income statement lists all items of income and expense related to the operation of your business. The income statement serves as a report of how much revenue your company has earned over a specific time period, usually segmented by year.
The “bottom line” of an income statement reveals net earnings or net losses. This number is the amount your company has lost or earned relative to the time period captured in the income statement. The top of the income statement lists the total amount of sales made during the given period. This number is often referred to as “gross revenue” or “sales”. As you read down the statement, you can see deductions for costs or other operating expenses that are attributed to earning that revenue. At the end of the list is the bottom line, where you can see your earnings or losses.
The income statement reveals the costs of sales, operating expenses, depreciation costs, and income and expenses from interest. Balance SheetThe balance sheet provides details regarding a company’s assets, liabilities, and shareholders’ equity.Assets, including physical property, trucks, equipment, inventory, trademarks, patents, and cash, are generally listed in order of liquidity – how quickly they can be turned into cash. Current assets are things that a company expects to sell within a year. Noncurrent assets, including fixed assets, are those possessions that the company plans to keep for more than one year. The balance sheet also lists liabilities, amounts of money that the company owes.
Liabilities can include money borrowed from the bank, pending payroll, rent, taxes, and so on. Typically, liabilities are listed by their due date and are classified as either current or long-term. Shareholders’ equity, also referred to as net worth, is the money that would remain if a company sold all of its assets and paid off every liability. The remaining money would be divided between the shareholders who hold stake in the company. Statement of Cash Flows.
The statement of cash flows lists the inflows and outflows of cash during a given time period. The bottom of the cash flow statement gives the net increase of decrease in cash for that period. The activities listed on the statement of cash flows are broken up into three categories: operating, investing, and financing. The experts at Behm Bookkeeping are available to provide expert bookkeeping services for your business. Financial statements can be confusing – trust your bookkeeping work to our professional staff and reap the benefits of time and organization. Need more advice? Call today!