Understanding the three financial statements and using them to monitor your business
Do you know what your business’s financial situation is? If not, you need to start paying attention! The three main financial statements are the balance sheet, income statement, and cash flow statement. Each one tells a different story about your business. By understanding these statements and monitoring them regularly, you can stay on top of your company’s finances and make sure that it is healthy. In this blog post, we will introduce you to each financial statement and teach you how to use them to monitor your business.
What are the three financial statements, and what do they tell you about your business?
The three financial statements are the balance sheet, income statement, and cash flow statement. The balance sheet tells you what your business owns (assets) and owes (liabilities), as well as the owners’ equity in the business. The income statement shows you how much revenue your business has earned and what expenses it has incurred over a period of time. The cash flow statement tells you how much cash has come into and gone out of your business over a period of time. Understanding these statements gives you a clear picture of your business’s financial situation.
1. The balance sheet
The balance sheet tells you what your business owns and owes and the equity owners have in the business. Assets are everything that your company owns and can use to generate income. Liabilities are everything that your business owes to others. Equity is the portion of the business that belongs to the owners. The balance sheet is crucial because it shows you the financial foundation that your business is built on.
Assets = Liabilities + Equity
2. The income statement
The income statement shows you how much revenue your business has earned and what expenses it has incurred over a period of time. This statement is important because it shows whether your business is generating a profit. The income statement is divided into two sections: revenue and expenses. Revenue is the money that your business earns from its activities. Expenses are the costs that your business incurs to generate revenue.
Revenue – Expenses = Profit (or Loss)
3. The cash flow statement
The cash flow statement tells you how much cash has come into and gone out of your business over a period of time. This statement is important because it shows whether your business is generating positive cash flow. Positive cash flow means your business has more money coming in than going out. Negative cash flow means your business has more money going out than coming in.
How to use each financial statement to monitor your business
Now that you know what each financial statement is and what it tells you about your business, you can start using them to monitor your company’s financial health. Here are some things to look for:
– On the balance sheet, make sure that your assets are greater than your liabilities. This means that your business has more things that it owns than it owes.
– On the income statement, make sure that your revenue is greater than your expenses. This means that your business is generating a profit.
– On the cash flow statement, make sure that your cash inflows are greater than your cash outflows. This means that your business has positive cash flow.
By monitoring these things, you can get a good idea of how your business is doing financially. If you see any red flags, you can take action to correct them.
How can ATHENASIA Consulting help you to sustainably manage your business with quality accounting information
At ATHENASIA, we understand the importance of financial statements in sustaining and growing your business. We are dedicated to providing quality accounting services that will give you the information you need to make sound financial decisions. If you are looking for reliable and quality accounting services in Hong Kong, ATHENASIA Consulting is a perfect choice. We provide boutique accounting services to SMEs that are mostly active in e-commerce, consulting, and services. Our friendly and quality service is renowned. We can help you to monitor your business’s financial health and take action to correct any red flags that you see.
Contact us for a free consultation at: info@athenasia.com or learn more about our full comprehensive accounting services.
