Business Accounting 101
In order to run a financially viable AND responsible business, owners should make sure they are preparing and reviewing accounting activities. Three financial records that owners should be aware of are: balance sheets, cash-flow statements, and profit and loss statements.
Balance Sheets: A balance sheet acts as a barometer to your financial conditions. It shows what your assets and liabilities are: how much you owe and what your net with is. Assets come in an array of forms and range from cash, to equipment, to real estate to money owed. Liabilities are what you owe to others and can include loans, debts, taxes and payroll. The difference between what you own (assets) and what you owe (liabilities) is your net worth.
Cash Flow Statements: Cash flow statements are records of how much money is coming in and how much money is going out. Cash flow statements are important because they record transactions that might be unpaid. Similar to a personal ledger or credit card bill, cash flow statements are records of a specific period of time.
Profit and Loss Statement (P&L): Simply put, a P&L lets you know whether you are making money or losing it. A sophisticated P&L will also inform you what services or products are generating income. It also regulates spending, so you are able to see what you might be wasting money on.
In order to make sure you are maintaining a healthy business you need to dedicate time and care to do it. Financial records and tracking help owners diligently monitor fiscal activities.