Show
When it comes to accounting, there are two foundational financial statements that have their tales to tell: balance sheets and income statements. Each one has its own role in your company's story, and they work together to create the bigger picture. Here's a quick look at each of these financial statements and the cautionary tales they can reveal: The Balance SheetWhat You Should Look for:When you look at a balance sheet, you should be looking for balances that don't make sense. The balance sheet is a moment-in-time view of your business. You get a quick snapshot of what's going on in your company's world. The following are some tell-tale signs you might identify if your numbers are out of balance:
Other Balance Sheet Red FlagsAt GrowthForce, we recommend that our clients review their Age to Accounts Receivable Report. This report will help you understand if your bookkeeper truly knows what he or she is doing when it comes to your numbers. Do you have customer balances and negative amounts that are equal to each other? This is a sign that your bookkeeper doesn't know how to use QuickBooks®. If you have an OBE, you may have a problem. In this case, this usually means the funds were applied to the customer but not the invoice. This situation often lends itself to accountants who have to clean up after bookkeepers. Another place of opportunity often arises with undeposited funds. In short, QuickBooks allows you to deposit funds into your general account. You enter the deposits on the main deposit screen. This money is held in an undeposited funds section of your account, accumulating all deposited checks, until you print a deposit slip and move the funds from this holding place into the actual bank account. Often times, bookkeepers enter the deposits into the main deposit screen, head to the bank, then never complete the transaction via QuickBooks. This causes money to stay in undeposited funds, and this section grows and grows until someone like a CPA comes in and asks why all this money is unaccounted for. The Income StatementWhat You Should Look for:The income statement presents a summary of income and expenses and shows you how profitable the business has been over a period of time. It is more like a movie reflecting income and expenses over a month, quarter or year, whereas the Balance Sheet represents a moment in time. Once you understand the accounting method suitable for your business, it should be clear when looking at the Income statement, the accuracy of those numbers. Income Statement Red Flags:
Without true trends, you're looking at inventory balances and gross profit margins that don't reflect reality, which means you don't really have a grasp on the money coming in or going out of your business. Your Financial Statements: What Should You Ask Yourself?When looking at your Financial Statements, it is important to consider accounting methods - understand the differences between Cash Basis vs Accrual Basis methods of accounting:
Cash basis and accrual basis are only a piece of the picture and it’s really important to look at both to understand what is actually going on with your company. Accrual gives a better view of your profitability. You can see a trend analysis because you recognize revenue and expenditures in the period in which the revenue was earned and the expenses occurred. You can see a forecast of your monthly burn rate for operating expenses and get an idea of what you need your gross profit to be in order to cover these expenses. Cash basis accounting can show larger fluctuations because one month might be really profitable and the next is not because of the timing of receipts and money going out. That doesn’t usually reflect the true profits on a job or project. If you want to see how well your overall operations are, accrual basis will give you a better view. If you're not confident in your financial statements, every aspect of your business can be impacted. From sales to service teams to management, everyone who has a stake in your business can be affected by the numbers on your financial statements. If they're inaccurate, or if you're not completely confident in the information they're providing, you could be missing out on opportunities. Here are some other things to consider:
Now that you've read this, how confident are you that your financial statements are accurate? If you're not sure about your answer, it's probably time to call on a team of experts who can help you organize the data and report correct numbers. At GrowthForce, this is one of our specialties. We offer accounting solutions that go far beyond simple bookkeeping. Take a look at how we can help you analyze performance and increase profitability today! Which financial statement captures a company's financial condition at a single point in time?The balance sheet is a snapshot of the company's financial position at a point in time. There are three elements of a balance sheet: what the company owns (assets) and owes (liabilities), as well as the amount invested by shareholders (equity).
What does the statement of financial position summarized for a business?A statement of financial position is commonly used to assess the position of a business in terms of financial stability and potential risk. A typical statement is likely to include a snapshot of a business's: assets. liabilities (such as loans, VAT, and Corporation Tax)
Which is the financial statement that reports the results of the operations of the business for one accounting period?Income Statements. An income statement is a report that shows how much revenue a company earned over a specific time period (usually for a year or some portion of a year). An income statement also shows the costs and expenses associated with earning that revenue.
What type of financial statement that shows the financial condition of the business as of a given dat?The balance sheet shows the financial position of a business as of the report date (so it covers a specific point in time). The information is aggregated into the general classifications of assets, liabilities, and equity.
|