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Sunday, August 16th, 2026<\/strong> While all these terms and numbers may initially be confusing to you at a glance, the information you need should be available to you, and be easy to understand.<\/p>\n The definition of a financial statement or financial report, is the record of any business\u2019 financial flows and levels.<\/p>\n When first starting a business, you need to determine the method you are going to use for accounting and paying taxes. <\/p>\n The choices your have are the cash method or the accrual method.<\/p>\n If you are looking for simplicity, the cash method is probably your best accounting choice.<\/p>\n Generally, income and deductions can be claimed when the payment is actually received or made. <\/p>\n For example, you open a small business and order business cards and stationary. You received the products and paid the invoice on September 17th, 2021. <\/p>\n Under the cash method, you can deduct the cost of these expenses on your 2021 tax return.<\/p>\n Keep in mind there are some types of businesses, who are restricted from using the cash method.<\/p>\n The Accrual Method of accounting can be a bit more complex. Using this method, the focus is on the date the expense was incurred, and not when the invoice was paid. <\/p>\n Although this may seem like a minor difference, it can play havoc with your books once tax time arrives.<\/p>\n Using our previous example. Say you order business cards and stationary on December 17th, 2020.<\/p>\n You receive the product on December 27th, 2020, but you don\u2019t pay the invoice until January 20th, 2021.<\/p>\n Under the Accrual method, you may be wondering when you can claim the expense. What it depends on, is when the “economic” performance occurred.<\/p>\n The definition of economic performance, is the date when the goods or services were provided to you. <\/p>\n In the example, “economic performance” occurred once the business cards were delivered with the invoice, on December 27th, 2020.<\/p>\n Thus, you would be able to deduct the expense in the 2020 tax year, although the invoice was paid in 2021.<\/p>\n The cash method is a lot easier of the two accounting methods. To determine the best method for you and your business, is up to you. Talk with a Tax Expert.<\/p>\n 1. Balance Sheet:<\/strong> A balance sheet describes a company’s assets and liabilities. At times these statements can be complex, as an extensive set of “Notes” to the Financial Statements and management discussion and analysis, are usually included. <\/p>\n These notes will typically describe each item on the Balance Sheet and Income statement in further detail. <\/p>\n In most cases, the notes are much longer than the financial statement they are elucidating.<\/p>\n This occurs if a company has extraordinary items affecting its balance sheet, or the shareholders equity position.<\/p>\n It will usually include an “Other Comprehensive Income Statement,” which describes the adjustments to be made. <\/p>\n Examples of Other Comprehensive Income, includes revaluation of corporate assets away from their stated cost, as well as accruals for liabilities.<\/p>\n An income statement, otherwise known as a profit and loss statement, is a summary of a company\u2019s profit or loss during any one given period of time. <\/p>\n This period of time could be a month, three months, or one year. <\/p>\n The income statement records all revenues for a business during this given period, as well as the operating expenses for the business. <\/p>\n It is extremely important to format an income statement, so it is appropriate to the business being conducted. <\/p>\n Income statements, along with balance sheets, are the most basic elements required by potential lenders, such as banks, investors, and vendors. <\/p>\n They will for instance, use the financial reporting contained therein to determine credit limits. <\/p>\n A statement of changes in financial position, is also referred to as the Cash Flow Statement.<\/p>\n What it does is reports the amount of cash coming in (cash receipts), and the amount of cash going out (cash payments or disbursements), during a specified period. <\/p>\n Business activities can result in either a net cash inflow (receipts greater than payments), or a net cash outflow (payments greater than receipts), during a period. <\/p>\n The cash flow statement shows the net increase or decrease in cash during the period, and the cash balance at the end of the period. <\/p>\n What it explains are the causes for the changes in the cash balance. The cash flow statement covers a span of time. <\/p>\n A balance sheet, in formal bookkeeping and accounting, is a statement of the book value of a business, organization or a person at a particular date.<\/p>\n This record is often at the end of its “fiscal year.” <\/p>\n It’s distinct from an income statement, also known as a profit and loss account (P&L), which records revenue and expenses over a specified period of time.<\/p>\n An asset is any item of economic value that’s owned by an individual or a corporation, especially if it can be converted into cash, and thus has monetary value.<\/p>\n Examples are cash, securities, accounts receivable, inventory, office equipment, real estate, a car, and other property used in the business.<\/p>\n On a balance sheet, assets are equal to the sum of liabilities, common stock, preferred stock, and retained earnings.<\/p>\n From an accounting perspective, assets are divided into the following categories: <\/p>\n \u2022 Current assets (cash and other liquid items) The definition of a liability, is it’s a current obligation of the company, arising from past events.<\/p>\n The settlement of which is expected to result in an outflow of cash from the company resources, embodying economic benefits.<\/p>\n
\nYou’re a home based business making money as a freelancer, an affiliate marketer or a professional such as a contractor. Perhaps you’ve got a corporate business downtown. You may be wanting to learn the true worth of a business, so it’s important to understand what financial statements are. <\/p>\nTwo Types Of Accounting Methods \u2013 Cash Or Accrual<\/h2>\n
1.) – Cash Method<\/h2>\n
2.) – Accrual Method<\/h2>\n
Choosing Cash Or Accrual<\/h2>\n
Know The Four Financial Statements<\/h2>\n
\n2. Income Statement:<\/strong> An income statement describes a company’s income and expenses.
\n3. Statement of Cash Flow:<\/strong> A cash flow statement describes how a company’s operating, investment, and financing activities have affected their cash position.
\n4. Statement of Retained Earnings:<\/strong> Describes changes to shareholders equity (for example a payment of dividend).<\/p>\nWhat Is An Income Statement<\/h2>\n
Statement Of Changes In Financial Position<\/h2>\n
What Is A Balance Sheet<\/h2>\n
Definition Of An Asset<\/h2>\n
\n\u2022 Long-term assets (real estate, plant, equipment)
\n\u2022 Prepaid and deferred assets (expenditures for future costs such as insurance, rent, interest), and
\n\u2022 Intangible assets (trademarks, patents, copyrights, goodwill)<\/p>\nWhat Are Liabilities<\/h2>\n
What Is Owner’s Equity<\/h2>\n