Today we’ll be sharing three essential financial statements that small business owners need to know. Small business owners tend to fall under a few categories when it comes to business management. The first type of small business owner will have all of their financial statements in order and use them to help their company thrive. The second kind knows how financial statements should work, but they never have the time to execute them. The third may not understand financial statements at all because they don’t have a background in business. Do you fall under categories two and three? If so, you can count on us to prepare your financial statements. Our accounting professionals believe that small businesses are big deals. Here are the three essential financial statements for small businesses.
Balance Sheet or Statement of Financial Position
A balance sheet tracks three things:
- Assets: This refers to everything that a business owns outright and its value. Short-term assets are anything a company has ownership of for only a year or less such as inventory, cash, or prepaid insurance. Long-term assets last longer than a year and could include tools, equipment, and property that a small business owns. Non-tangible assets include trademarks, patents, or copyrights.
- Liabilities: We define a liability as everything a business owner owes to a creditor or vendor for services not rendered or goods that have yet to be shipped. An example would be the balance of a business loan. Liabilities are also short and long term. Some debts need to be paid off within a year, and others will take a longer amount of time.
- Owner-Held Equity: This refers to the cash value of the company. Equity = (Total) Assets – Total (Liabilities). This equation is the simplest way to understand how to equate the equity of a business.
Income Statement or Profit-and-Loss Statement
This financial statement has many interchangeable names. In a nutshell, it tracks your revenues and gains and losses and expenses over a set period, whether it be monthly, quarterly, or annually. It can highlight the depreciation of your business. This statement is essential because it shows how profitable your business is.
Cash Flow Statement
A cash flow statement details any cash generated for a specific amount of time. It differs from an income statement because you don’t base it on accruals. This financial statement shows what has come into your business’ bank account. It explains what cash you have readily available to pay expenses. If there are discrepancies between income statements and cash flow statements, this is problematic.
If keeping up with these statements sounds overwhelming and financial management isn’t your forte, reach out to us.
Contact Bowman & Company Today
Bowman & Company CPA, PC provides all of our individual and small business customers with experienced, accurate, and affordable financial services. Our financial services are aimed at decreasing your taxes and increasing your net worth through responsible, timely, and accurate record keeping. We offer our services to clients throughout the Washington, D.C. metropolitan area including Maryland and Baltimore County, Columbia, and Howard County. For more information on our offerings, contact us online or call us at (410) 381-8121. You can also find us on Twitter, Linkedin, Facebook, and Youtube.