Every business should calculate its income and costs accurately. It should regularly monitor changes in income, costs and review its pricing approach. It will be better for the entrepreneurs if at least one partner has the ability to prepare budgets and cash flows tables or has good financial skills. The entrepreneurs should review the financial condition of the business periodically and to do this it is necessary to keep accurate and up-to-date records of sales, expenses and financial statements in the accounting system. By this way, you can see where the money is coming from and where it is going. It helps planning and budgeting and shows financial problems before they become a danger for the business. It will assist you in preparing reports to partners, funders and banks.
The key financial statements are listed below:
Balance Sheet
Income Statement
Cash Flow Statement
Statement of Changes in Equity
Footnotes
Balance Sheet
The Balance Sheet, also called the Financial Position Statement, is the name given to the table showing the assets (called active) and their sources (called liabilities) owned by the enterprise. A balance sheet reflects what your business worth on a given date. It is made up of what the business owns and money owed to it (assets) and money it owes (liabilities). Assets minus liabilities is the company’s value.
The statement of financial position (balance sheet) is basically divided into two parts. While the active part is divided into two as current and fixed assets in terms of the rate of conversion to liquidity, the liability part is classified as short- and long-term liabilities and equity. Since each asset is based on a resource, there is balance sheet equality in accounting. This equation is as follows:
Income Statement
Income statement reveals the revenue, expenses, non-operating gains and losses and net profit or loss within a certain period. In other words, the Income Statement, also called the financial performance statement, provides cumulative information about the performance of the business. Contrary to the balance sheet, it has a dynamic structure.
The financial performance statement, in other words, the income statement presents the activities performed in the period under five profit headings. These are gross sales profit and loss, operating profit and loss, ordinary profit and loss, period profit and loss and period net profit loss.
Cash Flow Statement
Cash flow statement is a financial statement that aims to explain the changes in the amounts of cash and cash equivalents between two consecutive periods. With the help of this financial statement, it is possible to monitor the money collections and payments of the enterprise in terms of resources and places of use. Thus, the decreases and increases in cash and cash equivalents during the period can be monitored together with their reasons; It greatly helps to predict future cash needs and prepare cash budget.
Statement of Changes in Equity
Statement of changes in equity is a financial statement that shows the increase or decrease in equity items as a whole in the financial reporting period. Thanks to this table, changes occurring in equity during the period can be seen as a whole.
Footnotes
Footnotes contain supplementary information regarding disclosure of information presented in financial statements.
