Your financial statements consist of your Income Statement, Balance Sheet and Cash Flow Statement. You should compile financial statements regularly to measure the health of your business. These statements are important if you ever need to seek a loan.
Income Statement
Your Income Statement calculates your company’s net profit or loss for a given period. Some people refer to this statement as a Profit and Loss (P&L) statement.
You can use the Income Statement to:
- Track revenues and expenses, comparing accounts to previous periods or budgets to spot trends or errors.
- Pinpoint when you're going over budget on certain accounts.
- Project cash flow.
Balance Sheet
Your Balance Sheet gives you a clear picture of the health of your business. It details the company’s assets, liabilities, and owner's equity (or shareholders' equity). When you create a year-to-year comparison, your Balance Sheet can reveal trends.
Cash Flow Statement
The Cash Flow Statement tracks the movement of cash into and out of your business over a given period. It's often considered the most important statement for operational health, as it shows if your company can generate enough cash to pay its short-term obligations. It details cash flow from operating, investing, and financing activities.
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