Creating financial statements for small businesses

Financial statements are important to small business accounting and are critical to understanding the financial health of a company.

They provide a snapshot of a company's financial position, results of operations, and cash flows for the period. There are three main types of financial statements: balance sheet, income statement, and cash flow statement.

A balance sheet is a summary of what a company owns (assets), owes (liabilities) and its net worth (equity) as of a certain date. It follows the fundamental accounting equation - Assets = Liabilities + Equity.

Balance Sheet statement gives an overview of a company's financial position and helps in assessing its liquidity and solvency.

The income statement, also known as the profit and loss (P&L) statement, shows a company's income for a specific period. After taxes and interest expenses are deducted, the company subtracts all expenses to arrive at a net profit or loss.

However, a cash flow statement only tracks cash inflows and outflows over time to help you understand how the money moves in your business.

The cash flow statement has three types of activities: operating activities (cash generated from day-to-day operations), investing activities (money spent on long-term assets such as property or equipment) and financing activities (cash generated from issuing shares, taking out loans, etc.). While a positive cash flow indicates a healthy financial position, a negative cash flow can indicate that a business is struggling to meet its financial obligations.

How do you make sure your financial statements are always in order? Answer: you should contact Foundry Accounting!