Financial Reports

The basics

by Sheila Attebury

For anyone who owns a business or just wants to keep track of their personal finances, understanding financial business reports or credit reports is essential. There are four types of reports used by businesses which are balance sheets, income statements, cash flow statements and statements of shareholders' equity.

A balance sheet gives information on a company's assets, liabilities and shareholders' or owner equity. Assets are things of values such as cash, property, buildings, trucks, inventory and equipment. Liabilities are the amounts of money the company owes to others. Examples include payroll, rent, loans, payables to vendors and taxes. Owner equity is what is left over if the company sold all its assets and paid off its liabilities. In the end, a balance sheet should do just that; balance the totals of a company's assets against its liabilities and owner equity.

An income statement is a financial business report that shows how much revenue a company generated over a certain time period such as a quarter or a year. An income statement shows the expenses associated with generating revenue. The "bottom line" reports the company's net earnings or losses.

A cash flow statement states a company's inflows and outflows of cash. This is used to determine if the company has enough cash on hand to pay expenses or purchase assets. This statement reorders the information from the balance sheet and income statement to show cash on hand at a given time. Cash flow statements are divided into three parts; operating activities, investing activities and financing activities.

Statements of shareholders' equity are used to show changes in the interest of the company's shareholders over time.

In the end, not one single report gives the whole picture of the financial health of a business, but combined together, they can be powerful tools. Whether you perform your own accounting or you hire a service, it is important to have these reports generated on a timely basis. Taking the time to understand how these reports work will give you, the small business owner, vital information towards keeping your business healthy and growing.

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