When I opened my logistics company in 1993, I had very little exposure to financial statements as I was not a CPA. What I did know came from my experience as the general manager of a small truck line. In this position, the only financial statement I was concerned about was the monthly and year-to-date income statements the firm’s CPA delivered each month. I did not understand or use the other financial statements the CPA produced monthly.
Once my logistics company was up and running, I determined that I needed more financial/accounting information than an income statement could provide. I began to learn about the other financial statements that were available to small business owners.
My company’s CPA suggested that I use a DOS version of Peachtree as the accounting system for my company. With his help, I set up Peachtree and began to use it to track the financial progress of my firm. As Microsoft’s Windows for Workgroups became the standard for workgroup networking, I migrated my company’s accounting to QuickBooks. Through this experience, I learned that both of these small business accounting software products will produce all of the financial statements a small business owner needs.
Below is a summary of the standard financial statements that you can use to monitor the progress of your company:
- Income Statement – Shows the revenue, expenses, and the profit/loss of your company for a specific period of time.
- Balance Sheet – Shows the financial position of your company on a specific date. The balance sheet includes assets (cash, accounts receivable, property, and equipment), liabilities (accounts and notes payable, and taxes payable), and owners equity (contributed capital and retained earnings, which is the profit of your company that has not been distributed to the owners).
- Cash Flow Statement – Shows the change in your company’s cash for a specific period of time. The cash flow statement is broken down into cash flows from operating activities, investing activities, and financing activities (remember "Happiness is a Positive Cash Flow"!).
- Statement of Owner’s Equity – Shows the equity you have in your company on a specific date. Equity is basically the value of the investment you have in your company.
I will discuss these statements in more detail over the next few days.
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