Why Are Financial Statements Important?
We hear this regularly when we are meeting with business owners; especially relatively new businesses. Let‘s see if we can answer this in short terms.
Financial statements are important for many reasons, but here are four significant reasons:
Income Statement
The income (or profit & loss) statement tells you the performance of your company. It shows the revenues earned and related expenses covering a certain period of time like a fiscal year. This statement is designed to show you if you made a profit.
Balance Sheet
The balance sheet is designed to show you a current picture of your assets and liabilities (debts) at a point in time.
Cash Flow Statement
The cash flow statement reconciles the net profit from the income statement to the amount of cash generated for that same period of time. It explains how your cash balances are driven to current available funds.
Conclusion
It is important to have accurate and timely financial statements to understand and run your business. It becomes even more necessary if you are going to get a loan from a bank or sell your business.
We hear this regularly when we are meeting with business owners; especially relatively new businesses. Let‘s see if we can answer this in short terms.
Financial statements are important for many reasons, but here are four significant reasons:
- Financial statements tell you the performance of your company. You can identify financials issues long before it may be too late to take corrective action.
- Financial statements are what others are using to measure your company (ie., banks, creditors, etc.).
- Financial statements and other tools help you manage your company when you can no longer be hands on with all the details.
- If or during an audit the IRS considers bookkeeping and accounting methods. With some entities the tax return requires financial statements to reflect on certain schedules, for example a corporation has a schedule for balance sheet items.
Income Statement
The income (or profit & loss) statement tells you the performance of your company. It shows the revenues earned and related expenses covering a certain period of time like a fiscal year. This statement is designed to show you if you made a profit.
Balance Sheet
The balance sheet is designed to show you a current picture of your assets and liabilities (debts) at a point in time.
Cash Flow Statement
The cash flow statement reconciles the net profit from the income statement to the amount of cash generated for that same period of time. It explains how your cash balances are driven to current available funds.
Conclusion
It is important to have accurate and timely financial statements to understand and run your business. It becomes even more necessary if you are going to get a loan from a bank or sell your business.
