NKWS Guide To Starting a Business -- Finance -- Financial Statements
Financial Statements
(The Financial Health of your Company)
Just like medical records contain information on the status of your health, financial statements disclose the financial well being of your company. Even companies that provide the greatest products or services are not immune to the effects of poor financial health.
Three Basic Financial Statements:
· Income Statement
· Statement of Retained Earnings
· Balance Sheet
Income Statement:
Also known as the profit and loss statement, the income statement shows how much money the company made or loss over a period of time. Sources of income and causes of expenses are both disclosed in the income statement.
Important Components of the Income Statement:
· Revenue
· Gross Profit
· Net Income
Revenue:
Total amount of money the company has generated before any expenses are deducted.
Gross Profit:
Revenue of a company minus the cost of the goods or products sold by the company, but before any other expenses are deducted.
Net Income:
This is the total profit or loss a company has accumulated after all expenses are deducted.
Statement of Retained Earnings:
Shows how much money is retained to shareholders’ equity after paying dividends to shareholders.
Balance Sheet:
The balance sheet shows what a company owns and owes at any given point in time. Like the name suggests the balance sheet should always be in balance, which means that Assets = Liabilities + Shareholders’ Equity.
Important Components of the Balance Sheet: ·
- Assets
- Liabilities
- Shareholders Equity
Assets: Anything that the company owns that is of value to the business.
Liabilities: Anything that a company is responsible for paying within a certain amount of
time.
Shareholders Equity: The dollar amount of a company that the shareholders of that company own.
* For a more in-depth look at the balance sheet go to http://www.sba.gov/managing/financing/balsheet.html
