The 3 Financial Statements 📄 📄 📄
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These 3 financial statements are affected by close to every action taken in your Finance & Accounting department
Let's take a deep dive on each:
📄 𝐈𝐍𝐂𝐎𝐌𝐄 𝐒𝐓𝐀𝐓𝐄𝐌𝐄𝐍𝐓 (also known as Profit & Loss)
This represents everything in terms of what your company is EARNING...
as well as what your company is SPENDING
Here are the major sections (and what they mean):
What is being earned via sales
The cost to deliver your product or service
⚫ GROSS PROFIT
Your profitability in carrying out your product or service (Revenue - COGS)
⚫ OPERATING EXPENSES
All other costs that relate to your core business, but aren't necessary to carry out your product or service (IE not COGS)
⚫ NET OPERATING INCOME
Gross Profit less Operating Expenses
⚫ OTHER INCOME
Money earned that is not core to the business (common ones can be interest income, or cash back from credit cards)
⚫ OTHER EXPENSES
Expenses that are incurred that are not core to the business (common ones can be depreciation and interest expense)
⚫ NET INCOME
Net operating income - other expenses + other income
📄 𝐁𝐀𝐋𝐀𝐍𝐂𝐄 𝐒𝐇𝐄𝐄𝐓
Here you can see a snapshot of everything the company OWNS...
while also understanding what the company OWES...
and the money put into the business through investments & prior profits
It is separated by 3 sections:
What the company owns that represents economic value. Common ones are cash, accounts receivable, and prepaid expenses
What the company owes to creditors. Examples can include credit card balances, accounts payable, and deferred revenue
This is the net value of the company that the owner's can claim, and is typically comprised of amounts invested, and prior earnings (retained earnings)
📄 𝐒𝐓𝐀𝐓𝐄𝐌𝐄𝐍𝐓 𝐎𝐅 𝐂𝐀𝐒𝐇 𝐅𝐋𝐎𝐖𝐒
This statement shows you all of the details that makes up the movements in your cash balance on the balance sheet.
It is comprised of 3 sections
⚫ CASH FROM OPERATING ACTIVITIES
This section shows all of the cash flows from activities related to operating the business
⚫ CASH FROM INVESTING ACTIVITIES
Here you show the cash movements from long term assets that are purchased that will be depreciated over time.
⚫ CASH FROM FINANCING ACTIVITIES
Here you show the cash from all equity investments and debt injected / paid out from the company
This summary is just a brief overview of these 3 statements