What do I need to know about financial statements?

Asked on 1/20/2009 by
Answered by Dave Cosper

You will want to have at good understanding of all your financial statements because they will provide you critical information on the sustainability of your ongoing operations. There are really three financial statements that are important to your business. They are:

• Cash Flow Statement— outlines your cash position during a specific period of time
• Balance Sheet— summarizes the financial conditions that affect your business at a given point in time
• Statement of Operations (Profit and Loss Statement)— shows whether you made a profit or loss during a specific period of time

It's important to compare all of these statements with prior periods. They are significant in helping you spot emerging trends in your business and giving the ability to act quickly.

An accountant will prepare these statements for you with the business data you supply - just be sure it's accurate! There are also a number of software programs you can purchase that will help you generate these statements from your sales, purchases, payments, collections and payroll.

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