1. What is balance sheet?
"The
accounting balance sheet is one of the major financial
statements used by accountants and business owners. (The other major financial
statements are the income statement, statement of cash flows, and statement of stockholders' equity) The balance sheet is also referred to as the statement of financial position."
- Includes: Assets
- Liabilities
- Owner's (Stockholders') Equity
Networth: Assets-liabilities= Equity
Creating a balance sheet:
First list current assets (to be used up in a year) than list investments,
then property, plant and equipment, lastly list intangible assets, other assets.
= ASSETS
Secondly list current liabilities (to be satisfied within a
year), long term liabilities. Thirdly list stockholders’ equity = LIABILITIES +
OWNERS EQUITY
2. Income statement
"The income statement is important because it shows the profitability of a company during the time interval specified
in its heading. The period of time that the statement covers is chosen by the
business and will vary.
Keep in mind that the income statement shows revenues,
expenses, gains, and losses; it does not show cash receipts (money you receive)
nor cash disbursements (money you pay out).
People pay attention to the profitability of a company for
many reasons. For example, if a company was not able to operate profitably—the
bottom line of the income statement indicates a net loss—a banker/lender/creditor may be hesitant to extend additional
credit to the company. On the other hand, a company that has operated
profitably—the bottom line of the income statement indicates a net income—demonstrated its ability to use borrowed and invested funds
in a successful manner. A company's ability to operate profitably is important
to current lenders and investors, potential lenders and investors, company
management, competitors, government agencies, labor unions, and others."
Revenue-
Cost of goods sold (COGS)= Gross income
Non
direct costs (rent, salaries, marketing) =Selling, General and Administrative
costs (SG&A’s)
Gross
income- SG&A’s= Operating income
Operating
income -tax = Net income
Balance
sheet vs Income statement
"The major difference between them is
this: the balance sheet is essentially a snapshot, while the income statement
is a movie. In other words, the balance sheet shows what you own (assets) and
what you owe (liabilities) at a moment in time (most often as of December 31).
The income statement shows what happens over a period of time (usually a year):
what comes in, what goes out, and what’s left over at the end."
3.
Ways to get familiar with business accounting:
There are numerous books about the subject, but I would recommend
browsing the web. Youtube has over 90 000 results on the words “what is income
statement”. The videos are higly educational and explain everything in a simple
way. I have included some of the basic videos in the previous segments.
In addition to watching youtube, there are several sites that give info
on how to do basic accounting. There are free courses and courses that are
payed for.
When searching the web, it is always important to also learn about the
legislation behind accounting in a specific country, in order to avoid any
future problems.