What Financial Statements Can Tell You About Your Business
One of the best things about QuickBooks is its reporting options. You select one, and the software creates the report using your company’s data. Some of these are called financial statements. They are always required by financial institutions and investors when you apply for a loan or other financing. You should also produce them at least once a quarter for your own information.
Financial statements can answer three questions:
- Where did my money come from?
- Where did it go?
- Where is it now?
Sounds simple enough. QuickBooks can create them in seconds. But it takes some accounting skill to analyze them. They are not always as easy to read.
Three Types
You may have heard the names of the three primary financial statements. They are:
Balance Sheet
This report focuses on a specific point in time and tells you what you own and what you owe at that precise moment by displaying your company’s:
- Assets, which can be physical things you own (cash and investments, buildings and vehicles, inventory, etc.) or not-so-tangible property that is also valuable (like patents or trademarks).
- In a nutshell, this word refers to money, goods, or services that your company owes to financial institutions, suppliers, customers or employees, taxing agencies, etc.
- Shareholders’ equity. This is sometimes referred to as net worth. It’s your core capital, the money that would remain if you paid off all liabilities and sold all assets. It belongs to the shareholders (owners).
Balance sheets are based on a simple formula: ASSETS=LIABILITIES+SHAREHOLDERS’ EQUITY.
The two sides must “balance,” thus the name.
Income Statement
This is sometimes referred to as Profit & Loss. It tells you how much revenue you brought in and what you spent to make that money over a specified period of time. The result is that you will know how much profit you made or how much you lost.
This is probably the least complicated of the financial statements that is generated automatically by QuickBooks. Creating it manually would be time-consuming.
Cash Flow Statement
This is more involved than its name might imply. While it reports on inflows and outflows of cash, it’s different from the Income Statement. It doesn’t just tell you whether you had a net profit or loss. Rather, it reports on whether your company actually generated cash by reordering information from the first two reports and illustrating changes over the time period for reporting. It details if there is a net increase or decrease in cash over the period.
We Can Interpret
Like we said earlier, generating these required reports in QuickBooks is easy. We want you to understand their implications for your business, though. Whether you’re applying for financing or just want to manage your operations, we can help. Let’s connect and explore what they mean for you.
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