Financial statements are an integral part of the running of the business, and one that requires meticulous tracking and documentation. However, when it comes to maintaining financial statements for a business, new business owners fall into 3 categories. The first category maintains clear records from the very inception of the business and use the information to improve the running of the business. The second category may understand the importance of maintaining a financial report but may put it off for a later date, and finally end up not having enough information to start maintaining proper records. Finally, the third category consists of those who primarily may not have a business background and therefore do not realize the importance of maintaining financial records.
Business owners get so caught up with the running of the business – acquiring customers, marketing the products or services, setting up websites etc. that they fail to give enough focus on creating and maintaining financial records from the very beginning. The last thing on their mind is the importance of getting their accounting firm to help them with preparing their financial reports. Once they start, though, it can also be difficult for business owners to figure out which financial reports are the most important ones, and which they should start on first. Here are the 3 most important financial statements that you should maintain as a small business owner in Australia. Be sure to consult your accountants in Perth to guide you through preparing these financial statements:
Profit and Loss Statement: the profit and loss statement is a summary of income and expenses for your business, maintained over a period of time. It is also known as an income statement. Each business owner decides the frequency at which it is prepared – usually on a monthly basis, or sometimes at the end of the financial year. The income statement is important as it indicates the profitability of your business’ current operations. This can advise you on how to expand or cut operations for increasing profits. It can also indicate potential lending decisions.
The Profit and Loss statement of your business will ideally contain information on the revenue, both those gained from primary activities and that gained from secondary activities. It would also contain information on gains from future incomes, for instance a successfully settled lawsuit or from selling your assets etc.
Cash Flow Statement: the cash flow statement is detailed accounting report on the cash that has been generated and used for a specific period of time, by the business. It is different from the income statement because the income statement shows what business has been generated on an accrual basis. On the other hand, the cash flow statement reflects what funds have actually come into your small business’ accounts.
The cash flow statement is a strong indicator of how much cash is available to pay expenses and invest in the business. If there is a wide margin of discrepancies between your cash flow statement and your income statement, this can indicate a problem in your business operations. Your small business in Perth would also have to adhere to the business laws and guidelines on how cash flow statements should be prepared. For this, you will need the expertise of leading accounting firms in Perth to assist you in maintain meticulous records.
The Balance Sheet: the balance sheet is essentially a full picture of the financial position of a business on any given date. It keeps a record of all the assets that a business owns, and the liabilities that the company owes. It also shows the difference between the two, which is what the company’s equity is. Some of the most important aspects of the balance sheet are the cash, accounts receivable, the inventory, the accounts payable, and finally the portion of long-term debt that is due in the particular financial year, in case you have accrued debts. It can also indicate short-term loans that are payable, which are secured by accounts receivable and inventory.
Therefore, the balance sheet basically shows you whether the business is making a profit or loss, taking into account the total revenues and deducting the total expenses. Thus, it indicates how well your business is performing, and can even help you in making predictions for the future of the company.
It is important that every business owner understands the significance of these three aspects of the financial statement of the business. These will help you make important financial and management decisions and also keep you well-informed about the day-to-day health of the business on the whole. One of the best ways to do the most in maintaining your financial statements is to get the advice and guidance of your accountants in Perth who could educate you on the guidelines set by the country and how to maintain a financial statement according to the same. They can also help you understand the information on your financial statements and use the information to make informed management and business decisions.
The author is a financial expert and is one of the most prominent accountants in Perth WA. He lives there with his wife and three children. Visit https://aldertonfinancial.com/ for more details.
Keywords: accountants in Perth, accounting firms in Perth, accountants in Perth WA
By: Frank Alderton
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