Have you ever wondered why your bookkeeping woes just don’t seem to end? There might be one aspect of your business that you may have forgotten to pay serious attention to. Although preparing financial reports is your bookkeeper’s job, it is still necessary that you understand the importance of various bookkeeping documents. If those statements leave you confused whenever your bookkeeper presents them, it is a clear sign that you need to seriously consider gaining basic understanding of the documents. You may not be as well-versed as your bookkeeper, but having an idea about the purpose and how you can use them will help you understand the financial information that your bookkeeper gives you.
Cash Flow Statement
The Cash Flow Statement is intended for presenting the movement of your assets. The main purpose of the statement is to demonstrate which direction your assets are going. There are three movements that the statement is broken down into: operating, investing and financing activities. Operating activities refer to the activities that the business performs. Making a sale is an example of operating activities. The investing activities refer to the purchase and sale of various assets and an example is buying a new location. Financing activities include paying or generating debt.
The Income Statement provides a summary of your business’s profits and losses for the current period. It also shows the business’s income and the sales revenue. You can also find the expenses of your business such as the wages and rent in the income statement. In order to find the net profit or net loss, the bookkeeper has to find the difference between the expenses and the income. Business owners often expect to find a net profit on this type of statement.
If bookkeepers want to provide advice or recommendations, this is the statement they will get references from. The bookkeeper will obtain information about the status of your business and the steps to take to make it more profitable. As a business owner, you will be able to know whether or not your business is doing well.
The balance sheet is an important bookkeeping document because it shows the amount of money you currently have. However, you should keep in mind that your specific investments are not taken into account. Compared to most accounting or bookkeeping statements that focus on every financial detail, the balance sheets only show the business’s overall success.
The balance sheets are also referred to as statements of financial position and they are considered bookkeeping’s building block. If there are additional statements that need to be created, the balance sheets are going to be essential so final conclusions can be drawn. In fact, other statements obtain information from the balance sheets.
More often than not, there are three essential elements that can be found in these balance sheets: liabilities, assets and equity. The liabilities refer to the items that your business owes such as loans. Assets include business-controlled items such as machinery and cash. The equity refers to the capital left after the assets have been used to settle liabilities. The balance statement also shows that the business’s assets are equal to the sum of both the equity and liabilities.