"#$% &'( )*+$+,*$- .
%$%(/(+%01
4/24/2012
8uS 100
!ay Posey
"#$% &'( )*+$+,*$- .%$%(/(+%01
8uslness owners use Lhree baslc flnanclal sLaLemenLs Lo Lrack Lhe flnanclal healLh of Lhelr buslnesses. 1hese sLaLemenLs
are Lhe lncome sLaLemenL, Lhe cash flow sLaLemenL, and Lhe balance sheeL. 8uslness owners generally creaLe Lhese
sLaLemenLs monLhly uslng Lhelr flnanclal records.
8uS 100
3
"#$ %&'()$ *+,+$)$&+
An lncome sLaLemenL ls a flnanclal sLaLemenL used Lo show wheLher a buslness ls generaLlng a proflL or experlenclng a
loss. 1hls ls done by ldenLlfylng all Lhe money comlng lnLo Lhe buslness, whlch ls usually Lhe revenue generaLed by day-
Lo-day sales. 1hen all Lhe money golng ouL of Lhe buslness ls ldenLlfled, Lhese are all Lhe bllls LhaL musL be pald Lo
malnLaln Lhe buslness. 1o deLermlne neL proflL or loss, Lhe buslness owner subLracLs Lhe expenses from Lhe revenues. lf
Lhls number ls poslLlve-meanlng, Lhe revenues are greaLer Lhan Lhe expenses-Lhe buslness ls generaLlng a proflL. lf Lhe
number ls negaLlve-meanlng Lhe expenses are greaLer Lhan Lhe revenues-Lhe buslness ls experlenclng a loss.
1here are several parLs of an lncome sLaLemenL. 1hese lnclude revenue, cosL of goods/servlces sold, gross proflL, flxed
operaLlng cosLs, pre-Lax proflL, Laxes, and neL proflL(loss). ln llgure 1 below, you can see an example of a slmple lncome
sLaLemenL for a company LhaL sells name badge holders. 1hls lncome sLaLemenL allows you Lo see Lhe buslness ls
proflLable, and how proflLable.
1
"#$ -,.# /0(1 *+,+$)$&+
1he cash flow sLaLemenL shows cash recelpLs less cash dlsbursemenLs over a perlod of Llme, generally a monLh. 1he flrsL
secLlon of a cash flow sLaLemenL shows all sources of lncome for Lhe monLh. 1he second secLlon shows all cash dlsbursed
by Lhe buslness for LhaL monLh. 1he lasL secLlon shows Lhe neL change ln cash flow. 1hls shows Lhe owner wheLher Lhe
buslness had a poslLlve or negaLlve cash flow for Lhe monLh. 1hls ls vlLal lnformaLlon because lL ls posslble Lo have large
sales volume and sLlll noL have enough cash Lo cover monLhly expenses. llgure 2 below provldes an example of a cash
flow sLaLemenL.
"#$ 2,0,&'$ *#$$+
A balance sheeL ls a flnanclal sLaLemenL LhaL ls dlvlded lnLo Lhree secLlons: asseLs, llablllLles, and owner's equlLy. AsseLs
are whaL Lhe buslness owns, llablllLles are whaL Lhe buslness owes, and owner's equlLy ls Lhe neL worLh of Lhe company.
neL worLh ls Lhe dlfference beLween asseLs and llablllLles, and shows Lhe amounL of caplLal ln Lhe buslness.
1yplcal asseLs for a buslness lnclude cash, lnvenLory, and caplLal equlpmenL, buL can lnclude any lLem Lhe buslness owns.
1here are Lwo Lypes of llablllLles-shorL-Lerm and long-Lerm. LlablllLles LhaL musL be pald wlLhln Lhe year are consldered
Lo be shorL-Lerm, long-Lerm llablllLles are ones LhaL can be pald over perlods longer Lhan one year. Cnce asseLs and
llablllLles have been ldenLlfled, Lhe owner's equlLy can be compuLed. Cn a balance sheeL, asseLs musL equal Lhe sum of
llablllLles and owner's equlLy. An example of a balance sheeL for name 8adges wlLh lzzazz mlghL look llke Lhe one ln
llgure 3.
1
LnLrepreneurshlp, 2/L, SLeve MarloLL and Carollne Clackln, earson LducaLlon, lnc., upper Saddle 8lver, n!, 2010, pages 222-228,
236-239
