![]() ![]() It consists of assets (what your business owns), liabilities (what your business owes) and equity (the value of your company: assets - liabilities). Where cash flow statements and P&L are your business’ road maps, your balance sheet is the globe. In a snapshot, it tells you whether your business has value or not today. This is a bird’s eye view of everything your business owns or owes. If your sales rise but your income doesn’t, you can use the statement to figure out where your money is going. You can track your sales patterns and trends, and you want to ensure that these rise in parallel with your net income. It is a record of your past income, up to the present day. The income statement, sometimes referred to as a “P&L”, “PNL”, or profit and loss statement, lays out your sales, costs of goods sold, and expenses, to give you your profit. Opening cash + cash received (or forecasted to be received) - cash spent (or forecasted to be spent) = closing balance. And that’s not something you want to rely on in the long term. If it’s not, you may be propping up your business in unsustainable ways, like using credit cards or loans. If you want to invest, you’ll need this operating activity to be enough to cover that too. This indicates that your business is generating enough cash to stay in the black. The key concern in your cash flow statement is that your operating activities total is positive. They help you track how much money is moving into and out of your business, and where it’s coming from or going to. These statements are usually split into three sections: operating, investing, and financing activities. Financial statements Cash flow statements We’ll talk more about what these are below. The standard documentation that businesses need like income statements, cash flow statements and balance sheets rely on both detailed bookkeeping and accurate accounting. Using records compiled by bookkeepers, accountants analyze, summarize and report on that information, and help business owners make informed decisions about their investments and claims. It’s about efficient records and tidy books. Bookkeeping refers to the daily organization and reconciliation of accounts.The terms bookkeeping and accounting are sometimes used interchangeably, but they are different things. So, how does it work? How Accounting Works Todayīefore we dive into the mechanics of accounting, let’s cover a couple of definitions and the statements businesses use to understand their finances. Without accounting, running a compliant, profitable and scalable business is practically impossible. A value which can be shared with potential stakeholders or buyers, and lend credibility to the business.īusinesses are fuelled by money.The means to apply for a business loan if required, or a business credit card.A system for detecting single points of failure, and diagnosing why unexpected cash flow problems may have arisen at any given time.A way to track what the business owns, owes and is owed by others. ![]() The tools to become compliant with legal obligations, like sales tax collection.Information about new or sudden changes to cash flow, to diagnose potential problems or unexpected charges.Information about their business performance and health, so that they can prepare for cash flow peaks and troughs.Insight into their costs and revenue, so that they can calculate profit margins.And since your money is the blood flow of your business, powering its essential organs, its proper management is essential. It’s about managing the money, and understanding its movements. It is the process of summarizing, analyzing, and reporting on the financial transactions within a business. Why should we spend time and money on accounting and bookkeeping in the first place?Īccounting is fundamental to your business. An Overview of Accounting and Why It Mattersīefore we dive straight into bookkeeping methods, let’s take a step back. ![]()
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