Understanding your financial statements
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This document discusses the importance of understanding financial statements for businesses. It outlines the three main categories of financial statements - the income statement, balance sheet, and cash flow projections. The income statement shows profits and losses over time, the balance sheet outlines assets and liabilities, and cash flow projections forecast incoming and outgoing cash flows. Financial statements are critical for both external stakeholders like banks and investors, as well as internal use by business owners to help manage and monitor the health of their company.
Understanding your financial statements
- 1. 1 Understanding Your Financial Statements Dennis L. Thompson, CPA, CFE 206-390-9432 www.dlthompsoncpa.com Financial Statements-Compass For Your Business • Ultimate Goal of Accounting System • Best Friend or Worst Enemy • Tells You Where Your Company – Has Been – Where It Is Now – Where It Is Going
- 2. 2 Categories of Financial Statements • Income Statement – Where You Have Been • Balance Sheet – Where You Are Now • Cash Flow Projection & Budgets – Where You Are Going Recommended Reading- Jim Schell
- 3. 3 Profit & Loss • Measures Business Activity Over a Period of Time • Income & Expense Accounts Are Temporary & Closed to Retained Earnings • Expenses Can Be Classified As Variable or Fixed • Most Useful If Compared to Different Periods Profit & Loss – One Year Variable Expenses Gross Margin
- 4. 4 Profit & Loss - Comparison Profit & Loss – By Job
- 5. 5 Balance Sheet - Assets Balance Sheet-Liabilities &Equity
- 6. 6 Balance Sheet - Comparison Balance Sheet - Comparison
- 7. 7 Statement of Cash Flows Increase Increase Increase Decrease Decrease Sales By Customer Summary
- 8. 8 Accounts Rec – Aging Analysis Purchase By Vendor Summary
- 9. 9 Accounts Pay – Aging Analysis Budgets • Why Budget – Forces You to Think & Plan About Your Business – Sets Expectations for Employees – Early Warning System – Can Help Detect Fraud
- 11. 11 Never Run Out of Cash Never Run Out of Cash- Philip Campbell
- 12. 12 Sample Cash Flow Projection P1 Sample Cash Flow Projection P2
- 13. 13 Summary • Financial Statements Reflect the Health of Your Business • Primary Audiences – External – IRS, State, Banks, Investors – Internal – You – To Help Manage Business • Most Problems Don’t Happen Overnight • Financial Statements Serve as Early Warning Summary • Financial Statements Must Be Analyzed and Acted Upon • It is Difficult to Be Successful in the Game of Business if You Don’t Know How to Keep Score