No matter the size of your company, you will need to understand how to read financial statements that reflect your business’s economic activities. As a small business, you may need clarification regarding the ins and outs of financial statements, ensuring you know what is required. Keep reading to learn more about financial statements.
Overview of financial statements
Financial statements record the financial activity, financial status, and performance of a business. The purpose of these records is to give a better insight and indication into a company’s financial activity and performance, whether for investment, tax, or financing purposes or to assess the future of a business.
Financial statement structure
Financial statements follow a specific layout consisting of three components.
- Current balance sheet: Presents assets and liabilities.
- Profit and loss statement: The recording of revenues and expenses in a given timeframe.
- Cash flow statement: Provides an insight into how proficient a business is with managing cash and covers financing, investing and operational activities.
When combined, these three components deliver an easy-to-follow rundown of the current condition of a business’s finances, providing better performance indicators for the business’s financial future.
How to create a financial statement as a small business
Along with the structure laid out above, your financial statement should also include an income statement, in which you will detail your business revenues, cost of sales sold, and other expenses in a specified time, following a vertical format. Small businesses must include an income statement, as this section will provide insight into the company’s current financial performance and economic prospects.
Need assistance with your business’s accounting & bookkeeping? We can help
We hope the above information has helped you understand why financial statements are essential for small businesses. Still, we recognise that you may need extra support when preparing financial statements for your business. Get in touch with Glance Consultants today for help with your financial reporting.
