NegosyoBuilder.com

Business Tips, Deals & Opportunities in the Philippines

  • Home
  • Resources
  • Contact Us
You are here: Home / Archives for Cash Flow Statement

Accounting 101: Financial Statements Explained

June 8, 2012 by Karla 2 Comments

Whether you are already running a business or just planning to setup one, it is very important that you have at least a basic knowledge about the fundamentals of Accounting and Recordkeeping.

I don’t mean taking up a formal course in Financial Accounting or Bookkeeping, though it would help. There are a lot of resources available in the Internet and in your local book shops which can get you up to speed in acquiring the basic knowledge of Accounting. What’s best is you can learn this stuff on your own, at your own pace.

Strive to learn up to a point where you understand at least three things:

  • Whether your business is making a profit or not.
  • Why you are making a profit.
  • Which areas of the business are profitable, and which are not.

You don’t have to be an expert with the details, but you should be able to tell the health of your business by looking at the Financial Statements, determine the financial strength of your organization. By understanding the nature of financial statements you can also have an idea as to how well your business is doing with regards to profitability and creditworthiness.

Discussed below are the basic financial statements that any entrepreneur should learn about.

The Balance Sheet

The Balance Sheet gives you a snapshot of the financial condition of the business. It lists the company’s Assets, Liabilities, and Equity. Assets refer to the current resources that keep the company running. Liabilities are the debts of the company. And Equity represents how much your company is worth which can be computed by subtracting the Liabilities from the Assets.

There is a famous accounting equation, which is written as:

Assets – Liabilities = Equity

The Accounting Cycle

The Accounting Cycle

As you can see from the equation, if Assets are greater than Liabilities the resulting value of the Equity is positive. If that value is negative, the business is in trouble, financially.

Income Statement

Sometimes referred to as the Profit and Loss Statement, this report provides a summary of Income and Expenses of company during a given period (month, quarter or year). This will show the creditworthiness and profitability standing of the business. It demonstrates whether the business earned a profit (earning more than it is spending), or posted a loss.

Cash Flow Statement

In simple terms, a Cash Flow Statement is an accounting of the available cash, plus cash income minus cash disbursements, for a given period. This report helps you track where cash has been used, where and why it is short or in excess. It determines whether the company can meet its obligations or not.

This statement also provides all details pertaining to both inflow and outflow of cash in a specific period. It contains three sections that differ according to the type of activity within the different business transactions: they could be the cash flows from operating activities, investing activities, or with financing activities.

To sum it up: The Balance Sheet gives you value (think: Net Worth) of the business at a specific period in time. The Income Statement gives you the Net Profit of the company. And finally, the Cash Flow Statement provides the details about the incoming and outgoing cash of the company over a period of time.

Recommended Accounting System For Small Business

  • Quickbooks
  • Peactree Accounting

Share this:

  • Facebook
  • Twitter
  • Pinterest
  • LinkedIn
  • Email
  • Print

Filed Under: Doing Business Tagged With: Accounting, Balance Sheet, Cash Flow, Cash Flow Statement, Financial Statements, Income Statement

Small Business Opportunities Philippines

Connect With Negosyo Builder

  • Email
  • Facebook
  • Google+

Articles By Category

  • Bricks and Mortar
  • Business How-To
  • Business Opportunities
  • Doing Business
  • Going Online
  • Money and Finance
  • Tech On Business
  • You On Business

Recently Written

  • 4 Financing Solutions Your Business Needs to Survive
  • Franchising Fees: What You Need To Know and Watch Out For
  • Top 3 Reasons Why Your Business Should Have A Website
  • Can You Really Make Money Online?
  • Traditional vs Online Business
  • How To Turn Your Hobby Into Cash
  • How To Build A Profitable Website With No Programming Skills
  • Domain Name Selection Tips
  • Why Rich Kids Hate Their Parents
  • Your Website In 5 Easy Steps

More Business Tags

Accounting Balance Sheet Branding Business Loans Business Name Business Opportunity Business Plan Business Structure Buying A Business Caltex Capital Cash Flow Cash Flow Statement Cooperative Corporation Credit Card Domain Name Financial Statements Financing Forms of Ownership Franchise Franchising Gas Station Get Rich Income Statement Legal Structure Make Money Marketing Online Business Online Payments Opportunities Part-Time Business Partnership Payment Gateway PayPal PayPal Bank Codes PayPal Philippines Petron Pilipinas Shell PR Software Start-up Taxes Tools Website
Negosyo Builder © 2023 :: Your Small Business Guide in the Philippines :: [footer_backtotop]
loading Cancel
Post was not sent - check your email addresses!
Email check failed, please try again
Sorry, your blog cannot share posts by email.