How to Read Financial Statements

At Anderson Business Advisors (formally known as BOSS), we get a common question from our clients and that is "what are the basic financial statements?" Well, there are really two main financial statements and it is important to understand that the IRS requires that all companies maintain books and records. If you do these two, you are going to be fine. The number one type of financial statement is going to be called a "profit and loss." What we are looking at there is gross revenue minus our expenses equals our net. A lot of times you will hear folks say "that is our bottom line." If I bring in $50,000 and I spend $25,000, my net is going to be about $25,000. That is a pretty good, healthy business. Banks like to look at the profit and loss statements a lot, because it is going to tell you a lot about the financial viability of a company. The next one w e are going to be looking at is a balance sheet. The balance sheet actually follows an equation. I am going to give it to you now. It is that assets, for example, equipment, a building, or things that are tangible, hard assets, that we are going to have listed on here, as well as possibly even some intangible assets, but these are going to be our assets. These have to equal the liabilities plus owner's equality, shareholder's equity, or just equity for these purposes. A lot of times the banks are going to look at this because they want to see what type of assets are on hand. So, for example, if I owned real estate of $1,000,000 - so I had a million dollar asset, and I only owed $500,000 on it, then I am going to have a half million dollar liability and I am going to have a half million dollars of equity. That is all it is, really, in a nut shell. We are going to be identifying what are our assets/what are the liabilities, so that we can determine exactly what the shareholder equity. From a profit and loss standpoint, we really are just looking at how much are we bringing in versus how much is going out to give us our profit. If you understand these two things and you keep those for your business, you are probably 99% out of the woods as far as maintaining any sort of records for banks or for the IRS, or from any other standpoint for that matter. You are well on your way to having a very good operating business.

Comments

1. morning sweet cheeks! Neva mind ya lil tootsies I bet that credit card of ur,s has took a bigger pounding (summer sale little snigger alert)!!!
2. best ever to the point and simple...
3. This is the most useless video on the planet...
4. profit or loss is the income statement
5. thanks for the video , very informative and very good at explaining the balance sheet in an easy way .