As a business owner, Financial statement is important, no matter of your company size. It will help track your company’s progress throughout the time.
Financial Statement are comprising of 3 main sections:
This section will track what your company owns and owes. In other words, it tells what your company have in hand, and what you must pay off sooner or later.
There are few categories in this section :
This includes the property, plant or equipment that the company owns.
This is the money that the customer owes to the company.
This includes the amount of money that you owe to the supplier.
This includes the loans and hires purchase the company takes.
Investments and fees to keep the company operating are in this category.
This will show the profit that company earn since last year until now
Profit & loss statement
This will measure the ability of a company to generate profit.
It consists of these few steps:
- Record the revenue of company
- Record cost of sales or service of company e.g. inventory price
- Derive the gross profit from the above steps
- Record the operating expenses by company. Examples are the salaries, rentals, utilities, transportation, petrol allowance
- Derive the net profit earned from above data
It is Important to monitor this, because only through this can the owner knows the sales of the company.
- Why does sales increase?
Through the data analysis, we can know if it comes from the high sales value or volume of the company.
- Why does sales decrease?
We will know if it is because of the increase in the cost of sales or an increase in payroll.
Cash flow statement
This section helps owners monitor their business in cash term; they can see how much money comes in and out in the exact amount.
For example, some business can have high revenue, but bad cash flow. This may be caused by their debtors, as the debtors keep dragging the debts. Through this, the business owner can pinpoint certain fees within the business to increase their profit.
This section will categorize the amount of money spent on these few categories:
- Operating activities, which includes
- Debts collected from debtors
- Debt pay to creditors
- Investing activities, such as
- Company’s equipment fees
- Financing activities, that includes
- Record of bank loan proceeds
- Repayment of bank loan
As a business owner, mastering the Financial Statement will definitely manage the company better, as analysis and data tracking are very important.
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