Some small-business owners, especially first-time entrepreneurs, may not be all that familiar with balance sheets and revenue statements. But you can consider some easy-to-remember tips to clear away the clouds. The most enduring way to remember these important financial statements is to learn what's in them. The concepts involved are quite easy to remember and all business owners, even non-accounting types, can understand these components in the real world. Commit these tips to memory and dazzle your company accountant with your new financial knowledge.
Balance Sheet Names
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Learn the interchangeable names for balance sheets. Many accountants favor at least two different names for the same statement. When you hear the name "statement of financial position" or "statement of financial condition," understand that these are also balance sheets by different names. Exactly the same information, often displayed in identical formats, appears in all three statements, regardless of their titles.
Balance Sheet Components
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All balance sheets comprise your company's assets, liabilities and owners' equity. The common acronym to spur your memory is ALE -- just like the adult beverage of the same name. Assets are the "things" and resources your company owns, including real estate, equipment, contracts and, of course, cash. Liabilities are monies owed, agreements to pay monies and other company debts. Equity is a measurement of the value of the owners' investment. Equity could involve stock, partnership percentages or single-owner company value. Mathematically, equity is the company assets minus its liabilities. The total of the assets always equals company liabilities and owners' equity.
Revenue (Income) Statement
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Also called the profit and loss statement, revenue, or income, and expenses are all you need to remember about this financial statement. Company income minus its expenses is the simple calculation that displays the profit or loss for operations during the time period covered by the statement. These are the only two components of the revenue statement. Revenues are grouped together, as are operating expenses.
Time
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Learn the difference between the "time" as stated on these two primary statements. Balance sheets show your company's condition at a point in time. The balance sheet heading will state "as of month/day/year," telling readers this is the condition on that date. Revenue statements express a "time period." In the heading, readers see "month/day/year through month/day/year." Instead of a snapshot of a point in time, income statements are displays of results over a specific period, typically one, three, six, nine or 12 months.
