Know Your Financials: Balance Sheet & Profit and Loss
At Lakesite Accounting, our passion is to help you use your financial statements to make strategic business decisions. In our eyes, easy tax filing is a happy side effect of good bookkeeping - but the real value is in the useful information you gain along the way!
Profit and Loss
Also called an Income Statement or a Statement of Revenue & Expense.
It measures the business revenue and expenses for a given period of time, usually monthly, quarterly, or annually.
It is often separated into a few main sections:
Sales: the total revenue produced, usually separated by revenue source
Cost of Sales or Cost of Goods Sold: the expenses that are directly related to the revenue that was generated - for example, the inventory that was sold, the labor to provide the service, or supplies consumed during the sales process.
Admin or Overhead: the expenses that are not directly related to specific sales - for example, building rent & utilities, general advertising, or software.
Properly defining and then evaluating the relationships between these sections can give insight into A) the business’s break-even point, B) whether the business is profitable, and C) how much the business’s profit can be expected to increase or decrease based on a given change in total sales.
Balance Sheet
Also called a Statement of Financial Position
It measures the business’s fiscal stability at a specific point in time
It is separated into three main sections:
Assets: the resources available to the business to support its operations - bank accounts, accounts receivable, inventory, or equipment.
Liabilities: the business’s obligations to other entities - credit cards, loans.
Equity: the investment made in the business by its owners, as well as the cumulative profit or loss generated by the business.
Remember: these two reports go hand-in-hand, and the Profit & Loss is only as reliable as the Balance Sheet! You need both to tell the full story.
We hope this encourages you to look at the reports with fresh eyes! Lakesite clients have the unique opportunity to meet with Heather, our founder and CEO, to review these important financial statements for their business. Schedule an Initial Consultation to learn more about our services.