A lot of us don’t like working with numbers, but that does not help when you are running a business. The smooth functioning of your business is centered around various facts, one of them is your ability to handle the finances for the company. On a day-to-day basis, there are numerous transactions that are carried out for the business and each one of them needs to be recorded. On the other hand, the profit and loss your company make also need to be captured and analyzed from time to time. In the world of accounting, there are certain financial statements that are absolutely necessary for a growing company. Accountancy firms in Edmonton commonly work on three types of financial statements for businesses. Let’s get to understand each of them in a better way.
The balance sheet is typically an equation (liabilities + owner’s equity = assets). Two sides of the equation must balance out. There are two types of assets that are considered while making the balance sheet – current assets and fixed assets. Current assets are those assets that can be converted into cash quickly within a year. On the other hand, fixed assets are machinery, equipment, land, buildings, furniture, and other essentials that you are not planning to sell. The other side of the equation includes liabilities and owner’s equity. Liabilities can be broken into short-term liabilities and long-term liabilities. This includes bank loans, accounts payable, and taxes. Owner’s equity includes invested capital or retained earnings.
The profit and loss statement is also known as the income statement. It enables you to project your sales and expenses over a stipulated period (from few months to a year). Here again, the financial statement is based on an equation (gross profit – total operating expenses = net profit). Gross profit comes from the sales of the products or services sold. The total expenses can be divided into variable expenses and fixed expenses. An example of a fixed expense would be the rent of the office, whereas that of a variable expense would be those that can change on the basis of the number of sales made.
Cash Flow Statement
Lastly, accountancy firms work on the cash flow statement for various businesses. The main aim of the cash flow statement is to highlight the total amount of cash that has come into the business and the total amount of cash that has gone out of the business.
If you are a business owner, you are certainly aware of these three financial statements that are crucial for your business. You can reach out toreputed accountancy firm in Edmonton to outsource all your accounting and taxation-related tasks.