Accounting Basics

The questionnaireA set of financial reports consists of two different types of reports.

The first one is the Income Statement or Statement of Profit and Loss.  This is the report most of us are familiar with.  It reports Income, Cost of Goods, and Expenses.  The bottom line on this report is the profit or loss of doing business.  The income statement reports activity over a period of time, typically a month, quarter, or year.

The second report is the Balance Sheet.  The balance sheet reports assets, liablilties and equity.  No income or expenses are shown on this report.  The assets can be the checking and savings accounts, vehicles, machinery, office and computer equipment, land and improvements or any other asset of the business.  The liabilities are the loans payable for the vehicles, building, machines and equipment.

Often overlooked liabilities are the credit card balances owing for business expenses.  If you are not reporting all the expenses purchased on a credit card, you are missing important deductions.

Also reported on the Balance Sheet is the owner’s or shareholder’s equity.   This is the difference calculated by subtracting liabilities from assets.

Why we need Accurate Financial Reports

One reason is the IRS (Internal Revenue Service).  Every spring we must report our income and pay income taxes. If you haven’t captured all the expenses that you are allowed to deduct, then you are reporting a higher profit, and paying a higher tax!  It is very important, then, that your bookkeeping has been accurate.

Keeping Accurate Books can save you tax money!

The other reason to have Accurate Financial Reports is to better assist you in making decisions about your business.  Do you need to make changes in the budget, or in a particular department?  Where is the money going? How much money is coming in?  Do our records agree with the bank statement?  Are the payroll totals and quarterly reports accurate?

If you don’t know the answers to these questions, I can help you discover them.  I know how to dig in and research what is actually contained in your records.

Your reports will only help you, though, if they make sense to you and are readable, helpful and accurate.

When you don’t have financial reports that make sense, you can’t really understand the finances of your business.  That leads to frustration and decisions made on inaccurate information.

Click on the Services or Solutions page to see how to get help.

Call Miriah Stuart @ 503-980-8739 or email