Getting to Know Your Financial Statements

Getting to Know Your Financial Statements

Are you aware of the state of your small business’s current finances?

If you run a business, learning how to read financial documents accurately is key to financial health! You need to know exactly where your money is going to and coming from, giving you the knowledge to cut unnecessary costs and find new sources of revenue.

Of course, not everyone is a professional bookkeeper or accountant, so many people need financial information to be presented in a way that is accessible and easy to absorb.

Here are the different types of financial statements that you need to know about in the world of business:

Different Kinds of Financial Statements

Income Statement

Simply put, this statement shows the amount of revenue that a business is generating within a specified period. It could be monthly, quarterly, or annual. If you’re looking to see your profits and losses, then your income statement will be your first stop!

A few of the aspects of your income statement you want to explore are:

  • Your Gross Revenue/Gross Sale – The amount of money you’ve made in a set period.
  • Your Returns and Allowances – The money that you stand to lose because of sales and other discounts.
  • Your Net Revenue – How much money you have after subtracting your returns and allowances.
  • Your Operating Expenses – How much money you spent to keep your business running (rent, wages, supplies, etc.).
  • Your Cost of Goods Sold – How much you spend to purchase your inventory.
  • Your Income Tax – How much you must pay in taxes to the government.

This is just a selection of the points you can explore in your Income Statement. If you’d like some assistance going through the entire document, we’d be happy to help!

Cash Flow Statement

Your Cash Flow Statement should tell you how much money is going in and out of your business over a period of time. It’s usually divided into three parts:

  • Investing Activities: Tracking the losses and gains of your business’s investments.
  • Financing Activities: Tracking the equity and debt of your business.
  • Operating Activities: Tracking the money and expenses covering your business’s operations.

Balance Sheet

Your Balance Sheet is an overview of everything your business holds, including your liabilities, assets, and equity. Your total assets should equal your liabilities and equity to ensure your financial health.

  • Liabilities: Debts that your company took out to pay for your expenses. These can be long-term (mortgages, business loans) and short-term (operating expenses, payroll).
  • Assets: Items of value that are owned by your business. These can be long-term (equipment, property, investments) and short-term (cash, inventory, securities).
  • Equity: This is the amount of money that currently belongs to you/your shareholders as the owners of your company.

How Quickbooks Online Can Help

The secret of generating accurate and concise financial statements for yourself and your business is to have all of your financial information kept in a single, safe place. If you need to pull data from several different sources, getting a complete picture of your financial health will be a huge headache.

However, everything you need is right there when you use an accounting program like QuickBooks Online! Once you’ve set it up for your business, it keeps track of everything, including your income, cash flow, costs, all in and outgoing invoices, and much more.

The main thing that keeps small business owners from using QuickBooks Online is a fear of a steep learning curve. Surely a comprehensive piece of accounting software is only meant for professionals, right? Not at all!

The beauty of QBO is that anyone can use it, no matter their level of financial literacy. In fact, by learning how to use this software, you’ll be teaching yourself how to better understand financial statements as you go, putting yourself in a much better position to run your business.

In addition, as QBO tracks all of your financial info in real-time, you can check in on your financial health whenever you want. This feature makes QBO an incredible resource for those looking to automate their financial reporting!

If you’ve never used QuickBooks Online before, we at The Number Works would be happy to help train you to use it. We’ve worked with many individuals and businesses across Ontario to teach them to use QBO to keep track of their financial health. So, if you’re interested in setting yourself up for financial success in 2022, don’t hesitate to get in touch with us today!