Contractor Accounting: Financial Statements
Friday, October 05, 2007
This is an ongoing series called Contractor Accounting 101.
Financial Statements:
After organizing all your company transactions into accounts, it is important to use this information to describe your business. Financial statements pull numbers together at the end of a month, quarter, or yearly cycle. The most important statements you’ll use are the Balance Sheet and Profit and Loss. They must be viewed together and they must be viewed often. The Balance Sheet is the same as the Accounting Equation:
Assets = Liabilities and Owner Equity
(For a review of the Accounting Equation, go here)
The Balance Sheet is a snapshot of your company at that time. It lists the Assets (Cash, Vehicles, Accounts Payable), Liabilities (Accounts Receivable) and Owner Equity (Your investment in the business, Earnings, etc.)
A Profit and Loss statement looks at the money generated (Revenue), minus the cost of products and labor (Gross Profit), minus the cost of operating expenses (Net Income or Loss). This statement is for a period of time – unlike the Balance Sheet, which is a moment in time.
Here is a sample Profit and Loss Statement (also called an Income Statement):
After you record your Net Income in the Profit and Loss statement, place this amount in your Balance Sheet. It is part of the Owner Equity, called Current Year Earnings. Year after year, the Current Year Earnings account is closed and put into a permanent account called Retained Earnings.
RELATED POSTS:
Contractor Accounting 101
Cash vs. Accrual Accounting
The Accounting Equation
Types of Accounts
Financial Statements:
After organizing all your company transactions into accounts, it is important to use this information to describe your business. Financial statements pull numbers together at the end of a month, quarter, or yearly cycle. The most important statements you’ll use are the Balance Sheet and Profit and Loss. They must be viewed together and they must be viewed often. The Balance Sheet is the same as the Accounting Equation:
Assets = Liabilities and Owner Equity
(For a review of the Accounting Equation, go here)
The Balance Sheet is a snapshot of your company at that time. It lists the Assets (Cash, Vehicles, Accounts Payable), Liabilities (Accounts Receivable) and Owner Equity (Your investment in the business, Earnings, etc.)
A Profit and Loss statement looks at the money generated (Revenue), minus the cost of products and labor (Gross Profit), minus the cost of operating expenses (Net Income or Loss). This statement is for a period of time – unlike the Balance Sheet, which is a moment in time.
Here is a sample Profit and Loss Statement (also called an Income Statement):
After you record your Net Income in the Profit and Loss statement, place this amount in your Balance Sheet. It is part of the Owner Equity, called Current Year Earnings. Year after year, the Current Year Earnings account is closed and put into a permanent account called Retained Earnings.
RELATED POSTS:
Contractor Accounting 101
Cash vs. Accrual Accounting
The Accounting Equation
Types of Accounts
Labels: Accounting
