Are you one of those business owners that only looks at the bank balance, and nothing else? If so, then you don’t truly know your business. And that’s a fact. Business owners need to know how to read an income statement, balance sheet, and cash flow statement in order to know the true state of their business. So, what do these three statements represent?
Income Statement
This report shows the company’s revenue (income) and expenses for a specific time period. It is crucial to know the revenue that you are generating compared to the expenses. The goal is obviously to have more income than expenses. A reliable income statement will show you what money you have coming in, and where your company’s money is going out.
Balance Sheet
This is a snapshot of your company. It represents the financial state of your company at that specific moment in time. This report will show you your company’s assets (company owns), liabilities (company owes), and equity. The goal is to have more assets than liabilities.
Assets – Liability = Equity.
Cash Flow Statement
This is a financial statement that summarizes the amount of cash, and cash equivalents, entering and leaving your company. It measures how well the company manages its cash, meaning how well the company generates cash to pay its debt and fund its operating expenses. The cash flow statement complements the balance sheet and income statement.
Stay tuned for more content to teach you how to read these statements!
Feel free to contact us if you have any questions.