Most important financial statements that an entrepreneur should know about 122461 1 - Most important financial statements that an entrepreneur should know about

Most important financial statements that an entrepreneur should know about

Whether you are running manufacturing companies in Chennai or a software company in Bangalore financial analysis is one of the most important aspects of any business operation. However, if you lack the knowledge in this department then from time to time, you may find yourself needing to understand more about your finances. So as an introductory step here are some of the most important financial statements that you as a small-scale business owner should know about:

1.The balance sheet

The balance sheet, or Statement of Financial Position, is a financial statement that summarizes the assets, liabilities and owners’ equity of a business. This statement provides a snapshot of a company’s financial health at a point in time. The balance sheet also indicates whether or not the company is profitable, and how much debt it has on its balance sheet. The balance sheet should be used to determine if there are any issues with cash flow as well as determine if the company is profitable or not.

2.Income Statement

The income statement shows how much money was made during a specific period of time compared to what was spent during that same period. An income statement breaks down revenue by types of transactions such as sales, services and interest earned, while also showing expenses in relation to those transactions. The income statement can give you an idea of whether or not the business is making money consistently or if there are any issues with cash flow that need to be addressed immediately.

3.Profit and loss statement

Analysis of the profit and loss account is perhaps the most crucial financial activity that a company conducts. A profit and loss statement (P&L) is a financial statement that shows a company’s revenue, costs, and profits for a particular period. It helps you to understand how well your business is doing on a month-by-month basis by comparing its performance with past months.

A P&L should be one of the first financial statements you look at after you’ve analyzed your income statement and balance sheet. It’s important because it answers questions like:

  • How much money did we make?
  • How much did we spend?
  • How much did we earn in profit?

 

  1. Cash Flow Statement

The cash flow statement is one of the most important financial statements you can have in your business. It shows you how much money comes into your business and how much money leaves your business each month. This is important because it helps you plan for the future, predict what will happen during the next quarter, and estimate how much money you’ll need to keep your business going. Some companies use the cash flow statement to determine if they are profitable or not.

The cash flow statement will show you how much money went out of the company in order to pay for expenses such as payroll and rent or equipment purchases, as well as any investments such as buying new machinery or computer equipment. It will also show whether there has been any change in net assets (assets minus liabilities). If there has been a change in net assets, it’s possible that someone made a mistake which caused him or her to overdraw on his or her account by more than what was reported on their books.

You should always check for errors when preparing your company’s financial statements because this could mean big trouble down the road if anyone tries to take advantage of these mistakes later on down the line!