FOR ALL BUSINESSES
While many financial statements can be extremely complicated, the most fundamental accounting items all businesses should be conscious of are contained in the balance sheet and the income statement.
This is the primary statement to look at when examining the condition of a business. It rolls all activity into one report for a specific point in time. It contains assets, liabilities, and equity. These items essentially paint a picture about future cash inflows and outflows and the net worth of the business. The items common to most businesses are:
The income statement, or Profit & Loss statement, breaks down all the financial performance for a given period of time. It can be set up to track activity over any period but is usually prepared monthly, quarterly, and annually. Items in the income statement can be thought of as what accounts for the change in balance sheet items between periods and ultimately the owner’s equity.