As your business grows, it’s sensible to keep your finger on the pulse of money coming in and out, and consistent financial statements help you do this. This financial statement guide will introduce some essential bookkeeping and accounting principles to help you understand the different kinds of statements and their purposes.
A balance sheet gives you a detailed breakdown of all your current assets (cash, goods you hold), liabilities (debt, salaries to pay) and equity (how much the business owner and investors hold in the business). It’s a highly useful form of financial accounting, as once the sum of equity and liabilities are subtracted from your assets, the remaining number tells you your business’s current value.
There are various ways you can format a balance sheet, but the most common approach is to use a ‘classified balance sheet’ where different subcategories of accounts are consolidated for ease of understanding. Below is a typical balance sheet format:
|Petty cash||100 RM|
|Total assets||80,100 RM|
|Accounts payable||5,000 RM|
|Wages payable||15,000 RM|
|Total liabilities||50,000 RM|
|Retained earnings||25,000 RM|
|Total Equity||25,000 RM|
A profit and loss statement (also known as P&L Statement, income statement or statement of operations) shows you the revenues, costs and expenses the business has incurred over a specific period— usually quarterly or yearly. By subtracting costs and expenses from revenue, you can judge the company’s ability to generate a profit.
Fundamentally, a P&L statement shows a company’s net income over a period and can show you whether this is going up or down. By contrast, a balance sheet gives you a snapshot of what a business is worth at any one time.
Keeping an eye on your profit and loss statement helps you stay on top of your cashflow and give you warning signs as to whether the business is in trouble. It’s worthwhile entering information into your profit and loss statement the moment you receive — or spend — money. Online accounting tools allow you to do this any time, anywhere.
Here is a standard profit and loss statement template:
Tam’s Fruit Stall
Profit and Loss Statement
|Fruit sales||10,000 RM|
|Revenues total||10,000 RM|
|Tax||2,000 RM||10,000 RM|
|Expenses total||8,000 RM|
|Net income||2,000 RM|