Question

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As a small business owner in today’s economy the three financial reports I would use on a daily basis would be an income statement, a cash flow statement, and balance sheet. The income statement shows the revenues, expenses, and therefore the overall net income at any period of time for an organization or company. As a small business owner, I can see how much I am truly profiting at the end of the month and decide what expenses to cut, to increase my revenue. The balance sheet shows the assets, liabilities, and equities of a business at any period of time This is important because it shows the value and liquidity of a business and can help when or if I decided to sell my business in the future. A cash flow statement reflects the inflow and outflow of cash specifically within a company. It is important when deciding whether credit needs to be requested because there is not enough cash inflow.

Answer 1

1. Balance Sheet
Of the Big Three Financial Statements, the balance sheet is the only one that shows the financial health of a company at a given moment. Instead of listing your business’s income and expenses like the P&L does, the balance sheet is a two-sided chart with three components (Assets on one side and Liabilities and Equity on the other):
One side lists the value of what you owe (your liabilities) and any owner equity (including your retained earnings) while the other lists the value of what you own and who owes you (assets):
The total of each of the two sides of the balance sheet should show the same amount to To determine the relationship between the three amounts, accountants use a simple equation:
For corporations, the equation looks like this:
Assets = Liabilities + Shareholder’s Equity
And for sole proprietors and partnerships, it looks like this:
Assets = Liabilities + Owner’s Equity
2. Profit & Loss Statement
The profit & loss (P&L) statement (aka income statement) shows your revenue, costs, and expenses during any given period of time. The P&L is the best view into your bottom line, or net income, which is why it’s typically used to show business lenders and investors whether your company has made or lost money during a given period.
Your business’s net income is also what will be used to determine its taxable income each year. This is calculated by subtracting your business’s expenses from its total revenue, which you can find using your P&L.
If you are familiar with the differences between cash and accrual accounting, you can probably guess that the method you chose can really dictate the figures reported on your P&L. Because each method has its own timing for recognizing revenue (cash requires money to change hands and accrual recognizes income and expense as they are earned in real-time), the P&L for any given period will reflect different transactions or values.
3. Cash Flow Statement
Your cash flow statement shows each and every one of your company’s incoming and outgoing transactions—how you’re spending your money and how you’re earning your income—over a period of time. The cash flow statement takes your business’s net income (from your P&L, remember?) and takes any non-cash transactions into account from operations, investing or financing activities to give you a picture of exactly what happened to company’s cash during that period.
From there, your cash flow statement provides a more comprehensive view of how your business operates, where it’s making money, and how you make choices about expenses. For this reason, investors typically scrutinize the cash flow statement.
A cash flow statement accounts for three types of activities:
Operations: the business functions you need to operate, including accounts receivable, accounts payable, and inventory.
Investing: long-term changes to equipment, acquiring or selling assets, etc.
Financing: acquiring debts, repaying loans, etc. which don’t affect your bottom line, but they do affect the amount of cash in the bank!