What Every New Business Owner Should Know About Working With An Accounting Service
As a new business owner, managing your finances on top of the day to day operations can be overwhelming. If you have thought about working with a business accountant like Don Lamb CPA Inc P.S. but worry about losing visibility to your company's financial performance, it's in your best interest to understand the financial statements that your accountant will create for you on a regular basis. You can request reporting on a monthly, quarterly or annual basis. Here are the four primary statements that you can expect and what they will tell you.
Cash Flow Statement
The cash flow statement provides you with clear picture of the actual cash handling during the reporting period. This report will show you the balance of the cash on hand and all of the changes to that balance during the cycle. Since the cash flow statement only focuses on the actual changes in cash, it will show you only the money that was physically received or spent during the period.
This is sometimes different than your reported income and expenses if you're accruing income that was earned in the period but not received or recording prepaid expenses that you issued payment for but won't be using yet (like insurance premiums). This statement is important, because it helps you see the consistent cash solvency of your business at any given time.
Profit and Loss Statement
The profit and loss statement, also known as an income statement, shows you the actual revenue earned in the reporting period. The opening line of your profit and loss statement will detail the gross revenue for that reporting period, which is the total sales for the period. This is followed by discounts and return projections, which reduce the revenue.
The next section shows the expenses associated with that revenue. This includes your company's operating expenses, administrative fees and manufacturing costs. The final line of this statement is the net profit or net loss, which reflects the difference between the total income and the recorded expenses.
Balance Sheet Statement
The balance sheet statement shows you the ratio of your company's equity, assets and liabilities. The statement will provide you with the balances of those accounts as of the reporting date, which is typically the last day of the month or the fiscal cycle. This statement is a summary report based on the core accounting equation, which shows that a company's assets are equal to the liabilities plus the equity.
Retained Earnings Statement
Retained earnings statements show you any financial transactions that affect your retained earnings account. This account is the one used to hold the net income or loss balance. The retained earnings statement begins by listing the closing balance of the account as of the previous statement date, and then it includes the net income or loss amount from the profit and loss statement. If you paid out any dividends in the period, that is reflected as well. This statement is concluded with the new balance of the retained earnings account after these changes.