For Small Business Owners

UnderstandingFinancial Statements

Prepared by Five Star AccountingUnit B1 - 1150 Waverley Street, Winnipeg, MB R3T 0P4 | 204.927.7111 | fivestaraccounting.ca

Who are the users of Financial Statements?

Owners - Yes, Really!

Lenders - For Comparative YTY Statements

Investors - To See Performance

Tax Preparers

Shows Income / Revenue

Shows Expenses

Covers a Period (Month, Quarter, Year)

If Revenue > Expenses= Net Income

Profit & Loss Statment

Shows Values at a Point in Time

Should Balance

Assets = Liabilities + Equity

Balance Sheet

Assets = Liabilities + Equity

7,000 = 5,500 + 1,500

What are Retained Earnings (R/E)?

- The accumulation of previous years' netincomes or net losses.

- Each year, the income or loss is added tothe R/E beginning balance.

- Negative R/E tells us the company has notbeen profitable.

The P&L and Balance Sheet "Hold Hands"!

What if Revenue increase by $200?

What if Expenses increase by $200?

New Office Furniture Cost $4000Yearly Amortization is $400

REVENUE & EXPENSES

Points to Remember About

and Accrual Accounting!

- Revenues are recorded when EARNEDand Not when money is received. This iscalled the Revenue Recognition Principle!

- Expenses are to be matched to theperiod when INCURRED and NOT whenpaid. This is called the Matching Principle. It is also to be matched to the revenue ithelped generate!