Typical Financial Statements which Vital for Entrepreneurs

Let’s know about some typical financial statements that are vital for entrepreneurs. The preparation of financial statements is made possible by the existence of accurate and thorough accounting records.

Most small business firms prepare an income statement, balance sheet, statement of cost of goods manufactured, statement of changes in the financial position, and the like.

Typical financial statements

Income StatementThe income statement shows the results of a firm’s operations over a period of time, usually one year.

Balance SheetThe balance sheet is a statement that shows a firm’s financial position at a specific date.

Typical financial statements

Figure showing that Both Sides of the Balance Sheet are Balanced

Statement of Cost of Goods ManufacturedThe statement of cost of goods manufactured is a supporting, detailed schedule of the “cost of goods manufactured” entry in the income statement.

Statement of Changes in Financial PositionFormerly known as the “statement of sources and uses of funds,” the statement of changes in financial position shows how a firm acquired funds and employed these funds over the same period covered by its income statement.

Entrepreneurs’ Most Vital Financial Statements

The most popular financial statements and the purposes for which these are used may be seen:

Typical financial statements

Figure showing the Accounting System in a Small Business

In spite of the obvious importance of keeping accounting records, many small firms do not maintain them adequately. A file of canceled checks and invoices alone is woefully inadequate.

It has been discovered, for example, that small firms, which have gone bankrupt typically, had inadequate accounting records.

On the other hand, small firms: which maintain adequate records reflect high-quality management because such records provide management a basis for more effective decision-making and better control over operating results.

Furthermore, adequate accounting records make it easier to detect employee fraud, waste, spoilage, and other losses.

Install a basic set of accounting books in a combination journal-ledger system. Such a system is explained in the letter part of this chapter. This is the heart of the accounting records.

The basic record, plus a worksheet summarizing operations at the end of the ilea month or fiscal period will enable the owner to make formal balance sheets and income statements regularly.

Anyone who has had a high school course in bookkeeping should be able to handle both. sassily. Self-instructing computer programs may be of help too.

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