| It is said that "when performance is measured, | | | | statement is that it represents a period of time. This |
| performance improves. When those measurements | | | | contrasts with the balance sheet, which represents a |
| are written down and analyzed the rate of | | | | single moment in time. |
| improvement increases." (Thomas S. Monson) So it is | | | | A Balance Sheet lives up to its name as a report that |
| with your business. There are three reports every | | | | shows an organization's balances. It shows the |
| small and medium size business should know and use | | | | balances of all the organization's bank accounts, credit |
| on a regular basis. They are a Profit and Loss | | | | card accounts, loans, inventory, payroll liabilities, |
| Statement, a Balance Sheet, and a Statement of | | | | ownership equity, petty cash, etc... The three accounts |
| Cash flow. | | | | that are presented in a balance sheet are Assets, |
| A Profit and Loss Statement (P&L) is the most | | | | Liabilities, and Equity. There are many ratios and |
| important report that all business owners need to | | | | indicators that one can pull from a balance sheet to |
| receive on a regular basis. This report, as the name | | | | measure the company's financial health. This report is |
| hints, shows you whether you are running your | | | | the only one of the three basic reports that is only a |
| business at a profit or at a loss. The two accounts | | | | snapshot of a single moment in time, or a specific date. |
| that are presented in a P&L are Income and | | | | A Cash Flow Statement or Statement of Cash Flows |
| Expenses accounts. | | | | is usually a pretty confusing report for many small |
| A Profit and Loss Statement is done for specific | | | | business owners. It can be difficult to read. But, once |
| periods of time. Most are done on a year-to-date | | | | you understand how to read a Statement of Cash |
| basis. But, depending on the software you are using, | | | | Flows, it can become a very valuable tool for your |
| you can manipulate the report to show comparisons | | | | management of your business, and the ability of your |
| of previous periods (years, months, weeks, etc...). As | | | | business to pay it's current bills and sustain it's |
| you look at the way your company's Income | | | | operations. |
| Statement fluctuates from period to period you are | | | | This report shows how changes in different accounts |
| able to make comparisons and find indicators of your | | | | from the balance sheet and profit and loss affect cash |
| company's financial health. There are many indicators | | | | flow, or the liquidity of the business. The report is |
| that you can look at (mostly financial ratios) that can | | | | broken down into three sections: operating, investing |
| help you manage your business more efficiently. A | | | | and financing activities. |
| Profit and Loss Statement has a couple of other | | | | It is important to always know where you are at in |
| names that you may be familiar with: Income | | | | your business finances. If you don't know where you |
| Statement, and Statement of Operations. They all | | | | are at, then how do you know if you are winning or |
| refer to the same thing. | | | | losing? Do you get these reports on your business on |
| The important thing to remember about an income | | | | a regular, consistent basis? You should! |