Preparing Financial Statements – Three Major Financial Statements
n accounting, there are dozens upon dozens of reports you can create to learn specific information. To get a clear, big-picture view of your company’s financial position, though, you need three very special reports. These three reports are the balance sheet, the statement of profit and loss, and the statement of cash flows. Both on their own and working together, these three major financial statements let you know what’s really going on for every aspect of your company.
At the end of every accounting period, you’ll create these financial statements as part of your regular cleanup work. Virtually all small businesses prepare all three statements for every period, but a lot of these reports end up being filed away without so much as a glance—and that’s a big mistake.
Some business owners really look at only their year-end numbers, some don’t bother printing them out at all, and some give them just a quick glance before moving on to the next project. The most successful business owners use these statements to nip potential problems in the bud, to capitalize on surprising successes, and to make sure that the numbers are in line with what they expected. The best time to deal with any of these issues, even the good ones, is right away, and you can only do that if you know what’s going on.
In addition, creating these statements for yourself, you may have to put them together for someone else. For example, the statement of profit and loss will show up on your company’s tax return. When you have a bank loan, the bank may want to monitor your balance sheet. The most important reader, though, is you. As you’ll see in Chapter 17, these reports contain a gold mine of information that will help you successfully grow a thriving business.