Managing a company accounting requires structure and discipline. A company director may specialise in a particular area such as a chef, a plumber or an entrepreneur, but he must know how to manage the accounting. This involves keeping accurate records and reconciling bank statements. Accounting also helps a company keep track of who it owes money to and when that money is due to be paid back.
Financial Statements
Financial statements are formal records of a business’s financial activities, position and performance. They are used for making decisions by managers, owners and prospective investors. They can be audited by CPAs or non-CPAs and prepared using Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).
For a small business, the primary financial statements are the balance sheet, income statement and cash flow statement. The balance sheet provides a snapshot of a company’s assets, liabilities and owner’s equity at a particular date. It also lists those assets that are liquid – in other words, easily turned into cash.
The income statement, or profit and loss statement, reports a company’s revenues and expenses over a period of time. This information, when compared to previous periods, can reveal trends and patterns. It can also be compared to competitors’ results to assess how well or poorly your company is performing. The cash flow statement ties these two reports together by tracking sources and uses of cash.
Cash Flow Statement
The cash flow statement provides a detailed breakdown of all cash activities over a period. This includes cash inflows and outflows for a company’s operating, investing and financing activities.
It shows the total amount of cash a company has generated or spent, and can help you determine whether your business has enough room to maneuver. It also helps you identify potential cash deficit periods in advance so that you can take measures to prevent these deficits.
The cash flow statement can be used to prepare an individual department’s budget for upcoming time periods. This allows you to predict the sources and applications of funds for your department. For IU, the cash flow statement is based on the object codes from both the balance sheet and income statement transfer tables (items 0001 through 9999). Departments must review and update their chart of accounts to record all financial transactions using the correct account numbers.
Profit & Loss Statement
Also known as the income statement or statement of operations, a profit and loss (P&L) statement provides a summary of a company’s revenues and expenses over a specific period of time, typically a quarter or fiscal year. The statement shows a company’s ability to generate sales and manage expenses in order to create net profits, which are then used to distribute funds to shareholders, pay down debts or invest in the business.
A P&L statement begins with total revenue from all sources for a given úcetnictví Praha period, and then subtracts all related expenses. This includes the cost of goods sold, selling and administrative expenses, taxes and other noncore income, such as interest income from bank accounts. A common-size P&L statement converts all line items into percentages of total revenue for easier side-by-side comparisons. Creating a P&L statement is an important exercise for all businesses and is often required during the application process for loan approval.
Balance Sheet
A balance sheet is a snapshot of the company’s assets, liabilities and equity. It’s often created at the end of a financial period, such as a quarter or year, but accounting teams can also create them for random points in time.
Assets are grouped by type, with the ones that can be turned into cash quickly listed first. These include cash, marketable securities, inventory items, accounts receivable and prepaid expenses. Then add in the sum of owner’s invested capital, public or private stock amounts and retained earnings (profits that are saved for reinvestment).
Conclusion:
Liabilities and debts are next, ordered by their due date with those that will be settled within the next year listed at the top of the list. These are then followed by long-term notes payable, pending tax liabilities and accrued expenses. The sum of all these is then added to the total assets on the left side of the equation. A healthy business has enough assets to cover its debts and liabilities.