Accountants prepare three of the primary financial statements every business needs. These reports are known as the, Income Statement, Balance Sheet and Statement of Cash Flow. The income statement provides the bottom-line profit or loss for a specified period of the business. The balance sheet provides the financial position or health of the business for a specified period of time while the statement of cash flows provides the amount of cash that was generated by the profits and how that cash was spent.
Sell more product and spend less to sell your product is how you make a profit. Sounds easy, right. But of course, it isn’t always that simple!
An income statement is read from top to bottom from revenue to expense, but the income statement also reports changes in assets and liabilities too. These changes may affect the profit of the company. Did you sell an asset and that may have created a larger profit? Did you borrow money and held off paying for some expense that may create a larger profit?
These shifts in assets and liabilities are important to managers, owners and executives of business to understand so they can manage and control them. Making a profit in a business involves numerous variables which are not just due to increase sales or decreasing expense but of the management of other assets and liabilities as well.