What Are Business Financials?

Companies need to keep written records of income and expenses in order to file taxes, report to shareholders and apply for loans. These records are known as business financials and they usually take the form of income statements, balance sheets and cash flow statements. It is good business practice to review these documents regularly.

Income Statement

One of the business financials that should be examined regularly is the income statement. An income statement is a record of the money a business takes in over a period of time. Most businesses issue statements monthly. The income statement records the money that comes into the business through sales and also has a section for expenses. These can be items such as rent, insurance payments, supplies and other costs associated with doing business. When the expenses are subtracted from the income, that gives you a figure called net expenses. This is the money the business cleared that month.

Balance Sheet

While the income statement is usually done monthly, a balance sheet tends to be created at the end of the fiscal year. A balance sheet looks at the assets and liabilities of a business and this information is especially important to anyone interested in the overall value of the business. The balance sheet includes assets, which are cash and investments the business has, plus accounts receivable, or money that is owed to the business, as well as inventory if applicable. The next section of the balance sheet is liabilities, which are debts the company owes, including wages and dividends. When you subtract the liabilities from the assets, you come up with the company’s worth or equity.

Cash Flow Statement

The cash flow statement keeps track of how much money a company has on hand to run the business on a day to day basis. This includes buying supplies, paying rent and utilities, as well as wages, insurance and other expenses. The cash flow statement is less formal than the income statement and balance sheet, but it usually includes information on operating, Investing and financing activities. The cash flow statement along with the income statement and the balance sheet, gives an overall financial picture of the health of a business.

Keeping the Books

Preparing and updating business financials is usually the job of a bookkeeper or accountant. Small businesses often hire a bookkeeper and then send the reports to an accounting firm when it is time to file taxes. 

The financial records of a company are important to anyone interested in the financial health of the business. These documents need to be prepared carefully and double-checked for errors.

SHARE IT: