Financial Reports

Did you know that there are four main financial reports that businesses use to help measure business performance? The four reports are:

Profit and Loss

Statement of Owner's Equity

Balance Sheet

Statement of Cash Flows

Ok, that's great. You can always pull up those reports and see the numbers, but what does each report actually mean? Here's a summary of each for you:

Profit and Loss:

• Reports the business' net income or net loss. This is the difference between the revenue and expenses over a specific period of time.

• Enables a small business owner to understand their company's operational performance and profitability.

Statement of Owner's Equity:

• Reports the owners investment in the business and if it has increased or decreased over a specific period of time

• The net income from the Profit and Loss report is transferred to this report which can either increase or decrease the owner's equity in the business.

Balance Sheet:

• Reports what the business owns (assets), owes (liabilities), and it's value (equity) at a specific point in time.

• Enables a small business owner to understand their company's financial position and helps them make informed decisions.

Statement of Cash Flows:

• Summarizes the business' inflow and outflow of cash over a specific period of time.

• Enables a small business owner to understand how their company generates and uses cash and helps them make informed decisions.

A good bookkeeper will not only provide these reports after each accounting period (usually monthly), but also provide insights into each report; such as where the business' strengths and weaknesses are. A good bookkeeper will also be able to dive deeper into each report and know exactly what they mean and not just a summary of them. They should also be able to spot any errors! If you want to improve your business' financial performance, have your bookkeeper dive deeper into each report and offer those insights.

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