Accounting 101 E-Book
What are the Financial Statements?
There are four statements that compile what we refer to as the
Financial Statements in accounting.
What are the Financial Statements?
There are four statements that compile what we refer to as the
Financial Statements in accounting.
- The Income Statement or Profit and Loss (P & L)
- The Balance Sheet
- The Statement of Owner's Equity
- The Statement of Cash Flows
The Income Statement summarizes for a specified date range the income and expenses for the period. If income exceeds expenses than there
is a net income. If expenses exceed income then there is a net loss.
When a business is involved in multiply revenue making tasks, they must report the proper expense with the related income. This will enable the
owner to see if the task is making a net profit or net loss.
The Balance Sheet is a list of all assets, liabilities, and owner's equity for a specific date in time. Generally this is the end of the month or year.
The balance sheet relies heavily on the accounting equation. Remember, Assets = Liabilities + Owner's Equity ( A = L + O ).
The order of the balance sheet follows the Equation as well. Assets on top to reach net assets. Then liabilities and owner's equity on bottom.
Take notice, assets are arranged in the order in which they will readily be converted into cash. Bank accounts listed first, assets used in
operations next, and last fixed assets, such as land and buildings.
is a net income. If expenses exceed income then there is a net loss.
When a business is involved in multiply revenue making tasks, they must report the proper expense with the related income. This will enable the
owner to see if the task is making a net profit or net loss.
The Balance Sheet is a list of all assets, liabilities, and owner's equity for a specific date in time. Generally this is the end of the month or year.
The balance sheet relies heavily on the accounting equation. Remember, Assets = Liabilities + Owner's Equity ( A = L + O ).
The order of the balance sheet follows the Equation as well. Assets on top to reach net assets. Then liabilities and owner's equity on bottom.
Take notice, assets are arranged in the order in which they will readily be converted into cash. Bank accounts listed first, assets used in
operations next, and last fixed assets, such as land and buildings.
The Statement of Owner's Equity shows the change of the
owner's equity in the business over a specific date range. This
statement connects the prior two statements together. Thus, the
statement of owner's equity relies heavily on the other statements
for its data.
Therefore, net income or net loss, investments of the owner's, as
well as there withdrawals from the company are directly reported
on this statement. Due to this the date ranges of these reports
must all match or else the these statements will neither match or
balance accurately.
The Statement of Cash Flows is the summary of cash receipts
and cash payments for a specific date in time. This statement
consists of three sections: operating activities, investing activities,
and financing activities.
owner's equity in the business over a specific date range. This
statement connects the prior two statements together. Thus, the
statement of owner's equity relies heavily on the other statements
for its data.
Therefore, net income or net loss, investments of the owner's, as
well as there withdrawals from the company are directly reported
on this statement. Due to this the date ranges of these reports
must all match or else the these statements will neither match or
balance accurately.
The Statement of Cash Flows is the summary of cash receipts
and cash payments for a specific date in time. This statement
consists of three sections: operating activities, investing activities,
and financing activities.
The operating activities section shows the summary of cash receipts and cash payments completed during operations. You
will notice that net cash flow differs from net income. This is because some events, such as the recording of income and
expenses may not be completed at the time cash is received from customers or paid to creditors.
The cash flow from investing activities is where the cash activities of the sale and acquisition of long-term assets. The last
section is the cash flow from financing activities. This section reports the activities related to cash investments by the owner,
their withdrawals from the company, and borrowings.
will notice that net cash flow differs from net income. This is because some events, such as the recording of income and
expenses may not be completed at the time cash is received from customers or paid to creditors.
The cash flow from investing activities is where the cash activities of the sale and acquisition of long-term assets. The last
section is the cash flow from financing activities. This section reports the activities related to cash investments by the owner,
their withdrawals from the company, and borrowings.
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keeping software for your business. Ask us also about our business tax specialist
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