Financial statements are written records of a business’s financial situation. They stand as one of the most essential components of business information, which provides much important insights to consultants.
When it comes to Finance, there are 3 Basic statements:
Financial statement is very important to understand how your business is running
Balance Sheet is like a snapshot of the current stage of the company’s property, debt, and ownership AT one given point in time. The balance sheet shows three figures …:
The neat thing about the Balance sheet is that it’s always balanced. Every action, every transaction change the three components but it’s always in harmony. Here are a few examples:
Sometimes they are categorized in one or other way, but most of the times you can easily grasp them.
Income Statement is sometimes called the Profit & Loss, or P&L. While the balance sheet is a snapshot at a given time, the Income Statement records the business performance through a period of time: a quarter, a year. The Income Statement directly tells you how the company is doing in terms of making money, the heart of any business.
From the top to bottom, the Income Statement shows the Revenues, Costs, and Profits. That’s why often times, Profits is referred to as the “bottom line”.
While Revenue is straight forward, Cost has a number of tricky components. Here are a few most frequently-mentioned types of Costs:
Depending on specific needs and conditions, companies break down the Statement into various further steps down the stream, along with a percentage of the total revenue, called “margin”. For example, we have:
One important thing to notice is that the Income Statement does NOT necessarily relate to the cash and any money factor. Many of the times, especially for “Business to business” transactions, the selling happens before the money flow. So we may have to record a revenue without having the cash yet.
There’s a famous saying that: Income statement is an opinion, Cash Flow statement is the fact.
The Cashflow statement just strictly monitors the cash flow in or out, categorized in different sections. Three of them are: Operation, Financial and Investing.