The Two Most Important Financial Documents for Your Small Business

This post comes to us from the Kashoo blog:

Whether the size of your small business is 1 or 100 employees, $25,000 in net income or $250,000 in net income, you need to pay attention to your business accounting. Your financial statements are much more valuable than helping you to prepare your taxes. They are part of your roadmap for the profitability of your company—even if your company is a business of one.

There are two overall financial statements—each of which contains sub-documents.

1) Balance Sheet
Your balance sheet is the up-to-date picture of your company's financial position at any point in time. It contains information about your assets (positive—"black ink") and your liabilities (negative—"red ink") and gives you the "bottom line" that your accountant always advises you to watch.

Your balance sheet changes with every transaction, but monitoring those changes helps you to monitor your income and outgo. Your assets are the items that your company owns outright, including inventory, accounts receivable, cash on hand, and so on. Your liabilities are what you owe to creditors in actual cash or its equivalent, including accounts payable, accrued expenses, fixed expenses, long-term debt, and so on. The equity in your business is represented by the figure you have when you subtract your total liabilities from your total assets. This is your company's net worth or bottom line.

2) Income Statement
Your income statement, also known as your "profit and loss" statement, reports on all of your income accounts and expense accounts over a period of time that you select—weekly, monthly, quarterly, annually.

Setting up and consistently using your small business accounting application will help you to stay on the track you desire for the financial success of your business and help you to avoid roadblocks and obstacles that can happen when you're not watching your bottom line.

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