What Are The Three Main Financial Statements Used In Business?
Are you wondering what are the main financial statements that are used in small business accounting? If yes then this article has got you covered with all the details? The statement the balance sheet and the cash flow are those three financial statements which you should typically understand for business. You need to realize that it is very important to understand each one of them as they are linked to each other. This intricate connection is vital to understand your business. Let's get started.
The first thing any investor will ask you is about your income statement. The income statement is vital as it is a reflection of your performance. It is a report which shows how your business has performed throughout each and every quarter. The income statement has the sales revenue as the main feature period gross profit can be found through the statement by deducting the cost of goods sold. The details like net income are also reflected in the income statement. Your income statement will have for revenue and expenses of your business over a certain time which can be either a court or a certain date. The income report will have small business accounting
principles like matching. If one is to summarise that what your income statement reflects then in small business accounting, it is used to assess the the profitability of your own business.
Balance sheet in small business accounting
The balance sheet in small business accounting will be displaying all the liabilities shareholder equity and the assets. If you are not aware then assets must equal the equity and liabilities. The asset portion will have the cash and equivalent which must match with the balance found towards the end of the cash flow. Further, the balance sheet is used to reflect the changes occurring in the major accounts. If you are wondering what changes are reflected then the net income from the income statement. A balance sheet reflects the financial position of the business. One can also see this small business accounting sheet from a lens of a snapshot, where you will get the idea of companies financial picture from a specific duration till the specific duration. As discussed above every balance sheet will contain three sections of assets, shareholders equity, and liability where assets can be termed as a sum of liabilities and shareholders equity.
Cash flow statement in small business accounting
Last but not the least, one of the major financial statements used in small business accounting commonly is the cash flow statements. The cash flow statement will get the details of a net income and it will adjust it with other expenses which did not include cash. All such compensations are reflected in the cash flow statement. The cash flow statement will reflect the change in cash for a certain period of time. It will also have all the details of the beginning balance and ending balance. One of the key features which are included in the cash flow if statements decrease and increase in cash over a specific period of time that can be from a year to a quarter or a specific date. The statement will remove all the accounting principles in order to show the real cash movements. It further has three sections of cash used in investing, cash from financing and cash used in operation.