Edmonton CPA | the most frequent questions about financial statements
If entrepreneurs are serious about increasing the quality of their decisions in business says Edmonton CPA, they need to understand their financial statements better. Since 80% of all small business owners score less than 70% on the basic business financial literacy test, that proves that most entrepreneurs lack a lot of knowledge about how to run their business effectively. All of the things that an entrepreneur can do to improve that should be explored. That includes learning how to read and utilize financial statements in their financial decisions.
There are several questions that Edmonton CPA gets on a regular basis about how and why entrepreneurs can do this. By sharing these questions, accountants entrepreneurs will be convinced to understand their financial statements on a deeper level, and use that information to guide their decisions in their business. The first question that entrepreneurs have for their accountant is what information is found on a balance sheet? Entrepreneurs should first take note that the balance sheet to be organized on a single page. Not only that, but all of the information will be organized very specifically on the page. Assets at the top, in order of how easy it is to make those assets liquid. That means cash first, followed by Accounts Receivable, followed by the inventory of the business. The property of the business is next including equipment and machinery, vehicles and buildings or real estate.
Edmonton CPA says on the balance sheet, underneath assets will be the liabilities including all of the bills and payments that an entrepreneur is responsible for including loans and financing payments. And ultimately, if the businesses that the end of this report. This includes the share capital and retained earnings. It is called a balance sheet, because if an entrepreneur adds of the equity in the liability together, it will equal the assets in the business.
The second question that Edmonton CPA gets when it comes to the financial statements of the business is what is an income statement. This is a report that covers a specific timeframe typically one month. It tells an entrepreneur how much money was generated in that timeframe, and what expenses were incurred in that month.
The third question that Edmonton CPA gets on a regular basis is what is the difference between an income statement and a profit and loss statement? This is a great question, because it causes a lot of confusion. Ultimately they are different terms the exact same reports. The reason why there are two different terms, is because Canadian chartered professional accountants and bookkeepers have learned to call in and income statement. However, the companies that make the accounting software are from the states, and therefore have been accustomed calling it a profit and loss statement. Ultimately, it is the same report that have to different names.
When entrepreneurs gain familiarity with their financial statements, Edmonton CPA says that that can help them not only understand them, but use them on a regular basis to make guided and informed financial decisions. Sooner in a business entrepreneurs can do that, the greater chance they have not only avoiding the high failure rate, but learning how to become successful as well.
Ultimately, the biggest reason why entrepreneurs do not review their financial statements as them ten CPA is because they do not understand how or why. Although the more information that an entrepreneur can learn about the finances of their business can help them make better decisions. For example, if entrepreneurs are not using any reports before they make a purchase or disburse payments like payroll, they could be putting their business at risk. By answering some commonly asked questions can help entrepreneurs understand what they need to do to develop this skill for their business.
The most frequent question that entrepreneurs have for their Edmonton CPA when it comes to their financial statements is what information is on income statement? Entrepreneurs should understand that this financial report should be organized very specifically but also be organized on a single page. This is going to show all of the revenue in the business during a specific free of time followed by all of the direct costs of providing a product or service. This means the subcontractors wages, materials etc. Underneath that, an entrepreneur should see the gross profit which is revenue minus direct cost of sales. Below that, will be a list of all of the general expenses of the business which are typically some of the highest expenses that an entrepreneur will have in their business. This includes rent of their office space, utilities, office supplies, advertising and marketing, and administrative salary. These are all the costs that an entrepreneur will incur whether they sell a product or not. Finally, Edmonton CPA says that all of this will total up to show an overall net income or net loss for that specific period of time.
The second most common question that Edmonton CPA gets from entrepreneurs who are learning to read and understand their financial statement is what is the statement of retained earnings. This is the third port out of three in a financial statement. This shows accumulative balance of the income or the prophets that have been left in the corporation. This is only important to learn if an entrepreneur is going to disburse the dividends in their business. And it is only needed to know as the corporation has earned profits. The dividends are going to be showing up in this statement, minus any dividends that have already been paid out. This is can I include a running total the beginning of the corporation. If an entrepreneur has never earned dividends, or has taken all of them, this report will be empty. If an entrepreneur is getting ready to disburse dividends to themselves and other shareholders, this is going to be an important report to run.
By understanding all these reports, Edmonton CPA says that entrepreneurs can gain a deeper understanding of their financial statements and how to use them to make decisions in their business. The sooner they learn how to do this, the greater chances they have of not only avoiding failing, growing their business as well.