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Business Fact SheetFinancial statements usually include the balance sheet, income statement (sometimes called a profit or loss statement) and the cash flow statement. They are prepared from business records at the end of each accounting period, but they can also be done on a monthly or quarterly basis. Annual accounting periods usually represent a fiscal year or a tax year.
Financial statements may be either historical — that is, from records kept over time—or they may be pro forma, which include estimates of future income and expenditures, net worth or cash flow. Annual pro forma statements range from one to five years and are usually required by financial institutions as part of the operator's business plan.
Balance sheets show you the financial position of your business in terms of assets, liabilities and net worth at a specific point in time. Let’s define these terms.
Assets are what the business owns. Examples of assets include current assets such as cash, inventory and accounts receivable, and fixed assets such as land, buildings and equipment.
Liabilities are what the business owes its creditors. They can be current liabilities, such as accounts payable and current portions of mortgage notes payable, or long-term debts such as notes or bank loans payable.
Net worth is what the business owes its owners. It is the difference between the total assets and total liabilities.
Balance sheets are usually prepared at the close of your business year. A sample format of a balance sheet is shown in Figure #1. Remember, balance sheets should always be in balance — that is, total assets equal total liabilities plus net worth.
Income statements reflect the annual operation of your business in terms of total receipts and total expenditures. They show the net income or loss for the business. A sample format of an income statement is shown in Figure #2.
Cash flow statements represent the difference between your business income and disbursements. Cash flow statements summarize the cash inflows and outflows of the business. They show cumulative balances and help you identify accumulations of cash surpluses or deficits. This information can help you make good decisions about borrowing money or making short-term investments of the surplus funds. A sample format of a cash flow statement is shown in Figure #3.
All three financial statements — the balance sheet, the income statement and the cash flow statement — can be very useful in analyzing your business using ratio analysis. Selected information from the financial statements is put into a mathematical ratio form and then compared to an industry standard or previous historical information.
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SAMPLE FORMAT BALANCE SHEET |
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| ASSETS | LIABILITIES AND NET WORTH |
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Current Assets: Cash $________ Accounts Receivable (net) ________ Merchandise Inventory ________ Supplies ________ Prepaid Expenses ________ Total Current Assets $________ Fixed Assets: Land $________ Fixtures & Leasehold Improvements ________ Building ________ Equipment ________ Trucks ________ Less: Accumulated Depreciation (________) Total Net Fixed Assets $________ TOTAL ASSETS $________ |
Current Liabilities:
Accounts Payable $________
Total Current Liabilities
$________ Notes Payable $________ Bank Loan Payable ________ Other Loan Payable ________
Total Long-Term Liabilities Total Liabilities $________ Net Worth: Retained Earnings ________ Total Net Worth $________
TOTAL LIABILITIES & |
| Figure #2
SAMPLE FORMAT |
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NET SALES |
$____________ |
| Figure #3
SAMPLE FORMAT |
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Annual Projected Actual |
Month ______ Projected Actual |
Month ______ Projected Actual |
Month ______ Projected Actual |
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CASH RECEIPTS
Cash Sales 1 |
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| Cash Sales 2 | ||||||||
| Cash Sales 3 | ||||||||
| Other Cash Receipts | ||||||||
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TOTAL CASH RECEIPTS |
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CASH PAYMENT
Start-Up Expenses |
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| Advertising | ||||||||
| Material Purchases | ||||||||
| Bank Service Charges | ||||||||
| Car & Truck Expenses | ||||||||
| Commissions | ||||||||
| Dues & Publications | ||||||||
| Employee Benefits | ||||||||
| Freight | ||||||||
| Insurance | ||||||||
| Principal Payment | ||||||||
| Interest Payment | ||||||||
| Laundry & Cleaning | ||||||||
| Legal & Professional Services | ||||||||
| Office Expense | ||||||||
| Rent on Business Property | ||||||||
| Maintenance | ||||||||
| Supplies | ||||||||
| Travel | ||||||||
| Meals and Entertainment | ||||||||
| Utilities: | ||||||||
| Water | ||||||||
| Telephone | ||||||||
| Power | ||||||||
| Salaries and Wages | ||||||||
| Other Payments | ||||||||
| Draw | ||||||||
| Taxes | ||||||||
| TOTAL CASH PAYMENTS | ||||||||
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SUMMARY
Starting Balance |
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| Plus: Total Cash Receipts | ||||||||
| Less: Total Cash Payments | ||||||||
| Equals: Ending Balance | ||||||||
For information on ratio analysis, see Keeping Your Business on Track, Part III: Ratio Analysis.
Special thanks to Louis V. Bassano, Extension educator, for reviewing this fact sheet.
For more information, contact your University of Maine Cooperative Extension county office.
Published and distributed in furtherance of Acts of Congress of May 8 and June 30, 1914, by the University of Maine Cooperative Extension, the Land Grant University of the state of Maine and the U.S. Department of Agriculture cooperating. Cooperative Extension and other agencies of the U.S.D.A. provide equal opportunities in programs and employment.
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