Whether you own a small or large company, the primary aim of any business is to make profits. A successful organization starts with the accuracy of any production and activity undertaken in the business and bookkeeping aspects are the primary factor to consider. You have to ensure that nothing is lost in the process of calculation of investments. You will need the following ABCs for a healthy growth of your business.
A: Accurate Income Statement
You cannot underestimate the importance of income statement. It is responsible for the calculations of total revenue, total expenses, and the net profit. If the income statement is accurate, you will get the exact expenses within a particular period and the revenue which in turn helps you to calculate the net profit. This will, therefore, help you determine if your business is doing well or if you need to improve. If the expenses are more than the acquired revenue, it means that you have incurred losses and therefore something is not right.
B: Balance Sheet
Businesses involve selling and purchasing of products. At times, you may require selling items on credit while at times you will need to borrow funds to finance your firm. Balance sheet allows you to calculate the worth of your assets which include inventories and cash. This way you can know your net worth and know if what you owe others is more or less than what others owe you. If the capital and liability side does not balance with your assets, then something is wrong.
C: Cash flow Statement
This helps you to calculate the cash inflow and outflow in your business. Without it, it can be difficult to determine the precise performance of the business. For example, while the income statement shows you how much interest you will pay for a loan and the balance sheet tells you how much you owe the lenders, cash flow statement shows you how much you consumed when serving that loan. While income statement records profit and sales, cash flow statement shows if the sales are generating enough revenue to cover expenses.
You should be very cautious when it comes to bookkeeping basics as it is ultimately the foundation for all your firm’s finances. It helps you know if you are utilizing your business funds properly so that you can make informed changes where needs be. This way, proper bookkeeping basics allow for a healthy business growth. For more information on how your bookkeeping can be done by a professional at the fraction of the cost of doing it yourself click here.
