Financial Statements

June 10, 2012

Do you know which financial statements you need to look at each month or each quarter to assess your business activities and progress towards your profitability goals?  Many business if not most, review the following financial statements at least monthly:  Net Income (loss), Statement of Owner’s Equity, and the Balance Sheet.  There are other helpful reports to look at such as a schedule of Accounts Receivable and Payable and a Budget Variance Report.  The Net Income Statement also known as a Profit or Loss Statement is simply a view of total revenue less expenses for the month.  The report can be as detailed as you wish, including lines for each type of revenue and type of expense the the net result being your profit or loss for the month.  It is important ensure that the information posted to these accounts are accurate and timely.  This will allow you to have confidence in the reports you generate.  QuickBooks is one example of accounting software, very popular with small businesses that will generate these reports for you automatically.  The key is to ensure that the QuickBooks file for your business is set  up properly in the beginning and that all transactions entered into the software are done timely and accurately.  QuickBooks is an exceptional tool for small business owners.  However, if the accounting software is not set up or used properly – it can actually cause more harm than good.  Your reports may not be accurate and you may not be able to access important information about your business’ financial status.  If you haven’t hired an accountant to help you set up and track your financial transactions, I strongly encourage you to take the time to learn as much about the accounting software you are using in your business and that you stay up to date with your transactions.  Bank reconciliations must happen every single month and must not be put off until later.  Your Bank Statement is your primary tool to ensure that you have captured every transaction in your records and that the bank (heaven forbid) as not made an error.  The longer you go without reconciling your account the higher risk you are for faulty and incomplete financial records.

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