Businesses run on numbers, so let’s make sure you understand them. This is the first post in a series of posts on financial statements.
We’re starting with the 3 basic financial statements:
- Income Statement: It shows what’s happening in your business over a period of time (month, quarter, or year): what comes in (revenue), what goes out (expenses), and what’s left over at the end (profit).
- Balance Sheet: Is a snapshot of what you own (assets) and what you owe (liabilities) at a moment in time (usually at December 31st).
- Statement of Cash Flows: It shows how much cash comes in and goes out of your business over a period of time (usually a quarter or year).
On first look, it may seem that each statement stands on it’s own. But that’s not the case. The three financial statements are connected. The profit your business earns drives the financial condition (aka balance sheet) and cash flows of the business.
This image will show you how your financial statements are connected: