What a Financial Statement Should Look Like
As a small business owner, you’ll need to monitor your company’s financial fitness regularly by reviewing various financial statements, including your income statement, balance sheet and cash flow statement, which reflect how your business has performed during a specified period of time. Regardless of what industry your business is in, each of your company’s financial statements will be prepared in accordance with a prescribed format.
Every financial statement you look over will have a heading that includes the name of the statement, such as “Income Statement.” The heading will also include the name of your business and the end date of the time period the statement represents.
Also known as a profit and loss statement, an income statement shows how much revenue your business generated over a certain period of time such as a fiscal quarter or year as well as the amount of money it paid out in order to generate that revenue. An income statement presents three successive amounts of profit or loss in a vertical format: gross, operating and net.
Gross profit is shown near the top of the report as the result of your company’s cost of goods sold being subtracted from its total sales revenue. Operating income is calculated in the middle of the statement and is the result of the subtotal of your company’s itemized operating expenses subtracted from its gross profit. Your company’s net profit appears at the bottom of the statement, after the subtotal of your company’s non-operating revenue and expenses is either added to or subtracted from its operating income.
A balance sheet is crafted to demonstrate that the assets your business owns equal the sum of its liabilities and owner’s equity. Typically, a balance sheet lists your company’s assets on the left side of the report, with short-term or current assets presented first followed by non-current or long-term assets and finally, intangible assets.
Liabilities are listed in the upper-right corner of a balance sheet with short-term liabilities preceding your company’s long-term debt obligations. Owner’s equity, which includes the earnings your business retains, is recorded under the presentation of your company’s liabilities.
A cash flow statement vertically presents information taken from your company’s income statement and balance sheet and demonstrates how the resources your business owns and the amounts of money that it owes have changed over time. Your cash flow statement will show your company’s cash in-and-outflows in the contexts of three types of activities in the following order: operating, investing and financing.
Your cash flow statement’s operating activities will demonstrate how the balances of your company’s current asset and short-term liability accounts have change. The investing activities section will reveal whether your company’s long-term asset accounts have increased or decreased. The financing section will show any increases or decreases that have occurred in your company’s long-term liability and owner’s equity accounts.