Bookkeeping in Six Steps Part 2
Updated: Mar 19
The fourth step is to prepare the financial statements. There are 3 important reports that need to be completed.
1) Income statement or Profit and Loss ( monthly, semiannually, yearly)
2) Balance Sheet (aka snapshot of business' net worth)
3) Statement of Cash flow (span of time)
The fifth step is to review the financial statements.
1) Income Statement--Revenue, COGS, and Operating expenses
*This is a great overview of the health of your business
2) Balance Sheet--What business owns (assets), What business owes (liabilities), and equity (owners contribution or retained earnings)
3) Statement of Cash flow--it tracks the actual cash inflows and outflows of a business over a specific period of time.
The sixth step helps all your bookkeeping to make informed business decisions.
*Key areas to analyze are the following
Revenue trends-compare periods to see growth or decline
Profitability-calculates margins (gross, operating cost, net)
Expenses-check for unusual or increasing costs
Assets/Liability-compare the difference
Cash flow-understand where cash is coming from or where it is going.
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