For reasons unknown to ourselves, bookkeeping isn’t everyone’s favorite topic. Despite that fact, keeping detailed financial records remains an integral part of successfully operating a business. This means that understanding the finer details of accounting can go a long way in keeping your business in the black. Teaching people about accounting is easily one of our favorite things to do at Ignite Spot.
Two of the most important parts of bookkeeping are maintaining income statement reports and balance sheets.
What is an Income Statement?
An income statement is a report on the business’ revenue and expenses over a given period of time. Typically, income statements are made on a monthly or quarterly basis and then compiled into yearly reports.
The income statement is a primary indicator of a company’s performance, and one that must be sent to the Securities and Exchange Commissions (SEC) if you’re a publicly-traded company. Income statements focus on four primary items: revenue, expenses, gains, and losses. The statement breaks down how net revenue realized by the organization is transformed into net profit or loss by computing net income and then detailing earnings per share (EPS), if stock is offered.
What is a Balance Sheet?
A balance sheet tracks three primary items: assets, liabilities, and shareholder equity at a given moment in time. Unlike income statements, balance sheets look at a single point in time as opposed to a period of operations. It functions as a snapshot of what assets the company currently owns, what liabilities it owes to others, and how much is invested by shareholders.
The basic calculation used by a balance sheet is: Assets = Liabilities + Shareholder/Owner Equity.
This formula places the value of what the company currently owns against what they owe to outside entities in addition to how much money shareholders or owners have invested. The balance sheet provides a quick glance at the organization’s finances at a specific moment in time. This means creating regular balance sheet reports can allow for direct comparisons to performance at other given times when balance sheets were created. You can use this to analyze your business’ performance over a period of time.
Both reports are great tools for gaining insight into the health of your company’s finances and operations. Regularly generating reports such as income statements and balance sheets can help provide perspective for business owners and executives. Analysts can use this information to determine the health of a business and to notify executives if trouble might be on the horizon.
Bookkeeping is as important as it is universally despised by business owners who want nothing more than to focus on running their company. Fortunately, the guys and gals at Ignite Spot are huge fans of meticulous tasks that involve staring at spreadsheets and decimal points. We provide outsourced accounting services for businesses of all shapes and sizes. Contact us today to learn more.