For Small Business Owners
UnderstandingFinancial Statements
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Who are the users of Financial Statements?
Owners - Yes, Really!
Lenders - For Comparative YTY Statements
Investors - To See Performance
Tax Preparers
Shows Income / Revenue
Shows Expenses
Covers a Period (Month, Quarter, Year)
If Revenue > Expenses= Net Income
Profit & Loss Statment
Shows Values at a Point in Time
Should Balance
Assets = Liabilities + Equity
Balance Sheet
Assets = Liabilities + Equity
7,000 = 5,500 + 1,500
What are Retained Earnings (R/E)?
- The accumulation of previous years' netincomes or net losses.
- Each year, the income or loss is added tothe R/E beginning balance.
- Negative R/E tells us the company has notbeen profitable.
The P&L and Balance Sheet "Hold Hands"!
What if Revenue increase by $200?
What if Expenses increase by $200?
New Office Furniture Cost $4000Yearly Amortization is $400
REVENUE & EXPENSES
Points to Remember About
and Accrual Accounting!
- Revenues are recorded when EARNEDand Not when money is received. This iscalled the Revenue Recognition Principle!
- Expenses are to be matched to theperiod when INCURRED and NOT whenpaid. This is called the Matching Principle. It is also to be matched to the revenue ithelped generate!
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