Financial statements produced regularly and correctly give key information to continually improve your business. Bookkeeping plays a critical role in managing business efficiently and effective. Understanding the key financial statements like profit and loss statement, cash flow statement and balance sheet are important to manage finances of your business. Understanding your figures, or financial literacy, is an essential skill for a successful small business owner. A proper accounting software can assist businesses with bookkeeping and maintaining a proper set of books of accounts.

1. Understanding
financial
statementsMoney, profit and accounting

2. 3 Key statements
 Profit and loss account
 Cash flow statement
 Balance sheet

3. Profit and loss account
Also called an income statement is a
summary of income and expenses for your
business over a period of time.
It is prepared at regular intervals usually
monthly and at financial year end.

4. Why prepare a profit and loss
account?
 To analyse all income and expense
categories
 To get a better understanding of your income
and costs
 Recognise areas that need more analysis,
and take action.
 To compare results with budget and previous
periods and industry performance.

5. Cash flow statement
 Is a summary of money coming into and
going out of the business for a set time
period.
 It is prepared regularly (weekly, monthly)
and at the end of the financial year.

6. Why prepare a cash flow
statement?
 Provide helpful warning signals
 Shows if business is running out of money
 Identify sources of cash inflow and where
cash used
 Helps to maintain a proper matching
between cash inflows and outflows.
 Shows capital purchases as money out

7. Balance sheet
The balance sheet is a general snapshot of the financial
health of a business on a given day.
You would normally complete a balance sheet at the end of
a month or financial year.
A balance sheet includes:
 Assets: Cash, stock, debtors, equipment etc.
 Liabilities: Money owed to suppliers or the tax department,
loans, credit card debt
 Equity: The value of the business after deducting what the
business owes.