Balance Sheets, Income Statements, Profit & Loss - What every small business owner needs to know to run a successful business.

1. For Small Business Owners
Understanding
Financial Statements
Prepared by Five Star Accounting
Unit B1 - 1150 Waverley Street, Winnipeg, MB R3T 0P4 | 204.927.7111 | fivestaraccounting.ca

2. Who are the users of Financial Statements?
Owners - Yes, Really!
Lenders - For Comparative YTY Statements
Investors - To See Performance
Tax Preparers

3. Shows Income / Revenue
Shows Expenses
Covers a Period (Month,
Quarter, Year)
If Revenue > Expenses
= Net Income
Profit & Loss Statment

4. Shows Values at a Point in Time
Should Balance
Assets = Liabilities + Equity
Balance Sheet

5. Assets = Liabilities + Equity
7,000 = 5,500 + 1,500

6. What are Retained Earnings (R/E)?
- The accumulation of previous years' net
incomes or net losses.
- Each year, the income or loss is added to
the R/E beginning balance.
- Negative R/E tells us the company has not
been profitable.

7. The P&L and Balance Sheet "Hold Hands"!

8. What if Revenue increase by $200?

9. What if Expenses increase by $200?

10. New Office Furniture Cost $4000
Yearly Amortization is $400

11. REVENUE & EXPENSES
Points to Remember About
and Accrual Accounting!

12. - Revenues are recorded when EARNED
and Not when money is received. This is
called the Revenue Recognition Principle!
- Expenses are to be matched to the
period when INCURRED and NOT when
paid. This is called the Matching Principle.
It is also to be matched to the revenue it
helped generate!