There are 3 main financial statements every business owner should review on a regular basis.

The Balance Sheet, Income Statement and Statement of Cash Flows all offer distinct information that is interrelated. Financial statements are like medical charts for your company that are used to determine the health of your company.

THE BALANCE SHEET

The balance sheet s a snapshot in time of your company’s financial position. It shows what you own, what you owe and what is left over.

Assets = Liabilities + Equity

The balance sheet must always be in balance. Everything on the balance sheet ties to supporting documents. Ex. checking account balance should match bank statement.

THE INCOME STATEMENT

Sometimes called a profit and loss (P&L), the income statement shows a company’s profitability over a period of time. The basic equation for this report is revenue – expenses = net income. There should be no negative numbers on your income statement. If there is, it could be classifed wrong.

STATEMENT OF CASH FLOWS

Statement of cash flows is the most misunderstood and least used of the 3 main financials. It shows where your cash came from and where it went over a period of time. Transactions that don’t affect cash receipts or payments will not be included on this report.

Just as a doctor does not rely on one test to diagnose a problem, likewise a company should not just rely on just one financial statement to determine their company’s health.

Now get out there and start analyzing!