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Financial Statements and Reports

Essential financial reports that help you understand your business performance and financial position.

Financial Statements​

Formal records of your business's financial activities and position. The three main financial statements are the balance sheet, income statement, and cash flow statement. Together, they provide a complete picture of your business's financial health.

Balance Sheet​

A snapshot of your business's financial position at a specific point in time, showing what you own (assets), what you owe (liabilities), and the residual value belonging to owners (equity). The balance sheet follows the fundamental equation: Assets = Liabilities + Equity.

Example Balance Sheet Structure:

  • Assets: Cash, accounts receivable, inventory, equipment
  • Liabilities: Accounts payable, loans, accrued expenses
  • Equity: Owner's investment, retained earnings

Income Statement​

A report showing your business's financial performance over a specific period, detailing revenues, expenses, and resulting profit or loss. Also known as a profit and loss statement (P&L).

Key Components:

  • Revenue: Total income from sales and services
  • Cost of Goods Sold: Direct costs of producing goods or services
  • Gross Profit: Revenue minus cost of goods sold
  • Operating Expenses: Overhead costs like rent, salaries, utilities
  • Net Income: Final profit after all expenses

Profit and Loss Statement​

Another term for income statement. This report shows whether your business made a profit or loss during a specific period by comparing total revenue against total expenses.

Cash Flow Statement​

A report showing how cash moves in and out of your business over a period, categorized into three sections:

  1. Operating Activities: Cash from day-to-day business operations
  2. Investing Activities: Cash used for or generated from investments and assets
  3. Financing Activities: Cash from borrowing, repaying debt, or owner investments

Why It Matters: A profitable business can still fail if it runs out of cash. This statement helps you monitor your cash position.

Cash Flow​

The movement of money in and out of your business. Positive cash flow means more money is coming in than going out; negative cash flow means the opposite. Managing cash flow is critical for business survival.

Statement of Accounts​

A detailed record of transactions between your business and a specific customer or vendor, showing invoices issued, payments received, and outstanding balances. This helps track what is owed or what you owe to specific parties.

Transaction by Account Report​

A detailed report showing all transactions for a specific account over a period. This report helps you analyze activity within individual accounts like bank accounts, expense categories, or revenue streams.

Income​

Money earned by your business from selling goods or services. Income is also called revenue or sales and forms the top line of your income statement.

Revenue​

Another term for income—the total amount earned from business activities before any expenses are deducted. Revenue represents the value of goods or services provided to customers.

Expenses​

Costs incurred in running your business, including rent, salaries, supplies, utilities, and marketing. Expenses are subtracted from revenue to calculate profit.

Operational Expense​

Day-to-day costs required to run your business, excluding cost of goods sold. Examples include rent, utilities, salaries, insurance, and office supplies. Also called operating expenses or OPEX.

Overheads​

Ongoing business costs that aren't directly tied to producing goods or services, such as rent, utilities, administrative salaries, and insurance. Overheads are a type of operational expense.

Cost of Goods Sold​

Direct costs of producing the goods or services you sell, including materials, labor, and manufacturing overhead. COGS is subtracted from revenue to calculate gross profit.

Gross Profit​

Revenue minus cost of goods sold. Gross profit shows how much money remains to cover operating expenses and generate net profit after accounting for direct production costs.

Gross Profit Margin​

Gross profit expressed as a percentage of revenue: (Gross Profit ÷ Revenue) × 100. This metric shows how efficiently you produce goods or services. A higher margin indicates better efficiency.

Net Income​

The final profit (or loss) after all expenses, taxes, and costs have been deducted from revenue. This is your "bottom line" and appears at the end of your income statement.

Net Profit​

Another term for net income—the actual profit remaining after all business expenses have been paid. This is the amount available for reinvestment or distribution to owners.

Net​

The amount remaining after deductions. For example, net income is income after expenses; net assets are assets after liabilities. "Net" always means the final amount after subtractions.

Profit​

The financial gain when revenue exceeds expenses. Profit can be measured at different levels:

  • Gross Profit: Revenue minus cost of goods sold
  • Operating Profit: Gross profit minus operating expenses
  • Net Profit: Operating profit minus taxes and interest

Margin​

The difference between selling price and cost, expressed as a percentage. Margin indicates profitability and pricing effectiveness. Higher margins mean you keep more of each sale as profit.

ROI​

Return on Investment—a measure of profitability calculated as: (Gain from Investment - Cost of Investment) ÷ Cost of Investment. ROI helps you evaluate whether investments in equipment, marketing, or projects are worthwhile.

Example: You spend $10,000 on marketing and generate $15,000 in additional revenue. Your ROI is ($15,000 - $10,000) ÷ $10,000 = 50%.

Forecasting​

Predicting future financial performance based on historical data, market trends, and business plans. Forecasting helps you plan for growth, manage cash flow, and make strategic decisions.

Retained Earnings​

Cumulative profits kept in the business rather than distributed to owners. Retained earnings appear in the equity section of your balance sheet and represent reinvested profits.

Dividends​

Distributions of profit to business owners or shareholders. Dividends reduce retained earnings and represent the return on investment for owners.