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ACCOUNTING 101 - Common Financial Statements - YouTube
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are you a business owner
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and unsure of the financial statements
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of your company
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and what they mean and how you should
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analyze them
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well if so great this video is for you
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hi my name is chris passmore and i'm
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your social media cpa
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so in my last video about accounting i
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talked about the four
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foundational terms in accounting general
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ledger trial balance debits and credits
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adjusting journal entry
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we're now going to build on that and
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talk about the
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four most common financial statements
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that you will see
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as a business owner so let's start this
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off the first financial statement i want
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to talk to you today about
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is the balance sheet the balance sheet
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is a
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financial statement which is intended to
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portray
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the position of the company at a point
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in time
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and this is important and i emphasize
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point in time the rest of the financial
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statements we're going to talk about
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today
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will be over a period of time a year six
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months
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but a balance sheet is as of a day for
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example december 31st
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so it's a snapshot and the balance sheet
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will present the assets of the company
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such as your cash your accounts
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receivable your inventory your fixed
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assets
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followed by the liabilities which would
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include accounts payable
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accrued expenses trade payables
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any debt or loans and your equity
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and the reason why it's called a balance
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sheet is because the total of your
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assets should equal the total of your
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liabilities
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and stockholders equity that's how this
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is built they're meant to offset each
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other
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so that balance sheet tells the story of
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your assets and liabilities at a point
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in time
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and also assesses the liquidity of the
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company how much cash you have and how
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you can maintain
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operations in the future
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so now let's talk about the income
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statement
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or the profit and loss statement and
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again this is now talking about a
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period of time the income statement
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typically is for a year
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and often times it's for the year ended
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december 31st
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and again to contrast that the balance
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sheet is as
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of december 31st so your income
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statement
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will summarize the the revenues and
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expenses
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of your company the revenues would be
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your product sales
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or your services that you've provided
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uh it will then list the cost of those
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services or the cost of goods sold
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if you are a manufacturer that would be
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the cost that you
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had into the product that you sold
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followed by gross profit this is how
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much profit you make on those
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core products after
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sales and cost of sales you would list
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operating expenses these would be things
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like
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rent and then ultimately down to the net
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income of your company the net income is
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supposed to represent your
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accrual based or your cash based profit
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how much money
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you had at the end of the year from your
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core activities
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i would say that the income statement is
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one of the
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most widely looked at financial
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statements
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of all of them whether you are applying
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for a bank loan
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or looking to raise capital or to
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attract new investors they often look at
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the income statement
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because it tells first of all are you
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making money or are you losing money
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which is important
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but it also tells how healthy the
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company
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if you're making a strong gross margin
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and they often look at other terms like
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ebitda which we'll talk and
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talk about in additional courses down
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the road
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but again the income statement is one of
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the most popular
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financial statements that will be looked
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at when you're sharing this with vested
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parties
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bankers stockholders and other people
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so the third statement i want to talk to
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you about today is the statement of
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stockholders equity
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also over a period of time commonly for
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the year ended december 31st
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so the statement of stockholders equity
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only
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rolls forward the activity of the
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company related to equity
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so what's equity there are a number of
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different forms of equity but the most
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common things you'll see in equity are
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three things it's your common stock
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how many shares you've issued it is your
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additional paid in capital
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and your retained earnings there are
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other forms of equity
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that are complex but generally those are
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the three that you're going to see
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on most of your company financial
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statements
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so the statement of stockholders equity
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just takes the activity as of the last
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period
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if we're talking about a calendar year
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from
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december 31st of the prior year to this
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year
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and if it's a normal year you have a
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company that's been formed and been in
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operations
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more often than not the only activity
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from year over year is just your net
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income
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or your net loss that will be your
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change in your retained earnings
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so even though it may sound overwhelming
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your statement of stockholders equity
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it's actually
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very simple because more often than not
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the activity is limited to one or two
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things
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like your profits the last statement i
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want to talk to you about today is your
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statement of cash
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flows this is a statement that measures
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your
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incoming money from sales or
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maybe you took a loan from a bank and
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your outflow of money this is
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the payment of your bills purchases of
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property and equipment repayments of
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loans and things of that nature
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so this statement of cash flows is meant
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to summarize your
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incoming and your outgoing funds
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there are two general types of cash flow
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statements
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and you might read about them in a
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textbook and the reason why i say that
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is it's in a textbook because
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everybody in practicality only uses one
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so you have your direct cash flow
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statement
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and your indirect cash flow statement
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we'll get into more detail about those
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in a video
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down the road specifically for cash
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flows
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but i can tell you i've been practicing
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for 20 years
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and i have never seen a single company a
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controller
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or a cpa use a direct cash flow
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statement
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nine out of ten companies use the
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indirect cash flow statement
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and that is the most widely accepted
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form of
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cash flow statement and again this
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summarizes your collections of money
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your incoming money your sales your
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revenue
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and then your outgo of money imagine if
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you bought a
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piece of equipment for your business
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that would be an
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outflow of money so that'd be shown as a
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negative amount on your
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cash flow statement and that would be
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for a period of time
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so those are the four most common
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financial statements that you will need
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to run your business
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or that your controller or bookkeeper
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will prepare for you
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several of these financial statements
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are automatically built into various
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general ledger
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programs like quickbooks if you go into
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the reports module
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often have profit and loss or an income
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statement and a balance sheet but this
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is the most commonly used ones that you
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need to know about that you need to
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understand
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to effectively run your business
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so we're going to keep building on this
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series and in the next video we'll talk
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about specifics of the balance sheet the
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individual
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items that go into the balance sheet
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like your accounts receivable in
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inventory so i hope to talk to you again
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and i hope you found this useful and
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have a good day
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