In providing you with some small business accounting tips, the common financial statements include the Income Statement, Balance Sheet and Statement of Cash Flows. The Income Statement is going to be the most important Financial Statement prepared. This statement is commonly known as the Profit and Loss Statement or the “P&L”. The P&L provides you with a summary of your expenses and revenues for a time period.
Income Statement Example:
Sales Revenue $20,000
Less: Cost of Goods Sold (COGS) $5,000
Gross Margin $15,000 (Sales Revenue minus COGS)
Total Operating Expenses $8,100 (rent+wages+supplies)
Operating Profit $6,900 (Gross Margin minus Total Operating Expenses)
The sales revenue figure shows the total sales amount for a certain time period. Sales revenue subtracted from COGS provides you with your Gross Margin. The Gross Margin minus the Total Operating Expenses provides you with your total operating profit.
The second Financial Statement you need to prepare is the Balance Sheet, which reports the businesses assets, liabilities and capital. The assets include items owned by the business that have value. The liabilities include the amounts owed by a company. Capital is the amounts paid into the businesses by owners, shareholders and/or partners.
Balance Sheet Example:
Total Assets $14,000
Accounts Payable $2,000
Loan Payable $6,000
J.Hooper, Capital $6,000
Total Liabilities and Owners Equity $14,000
Keep in mind that the Balance Sheet must balance when prepared. The Balance sheet shows the businesses financial condition for any point in time. The Balance sheet is typically prepared at the end of the year.
Quickbooks is a small business bookkeeping accounting program that automatically calculates the Income Statement and all other Financial Statements for you, which is great! There’s no need to understand or memorize the accounting equations necessary to prepare the Income Statement or any other financial statement when using QuickBooks.
If you are interested in seeing how QuickBooks calculates these reports feel free to check out their free 2016 online trial for small businesses.