Understanding Financial Reports
In This Chapter
Loving the kudos with income, not loss
Feeling the heat? Read your Balance Sheet
Wallowing in profit with not a bean in your pocket
Plotting trends to see what the future intends
In this chapter, I don’t explain how to generate financial reports, but instead focus on how to understand financial reports. I address key questions such as ‘Why does this report show a profit yet there’s no cash in the bank?’, ‘Why don’t tax payments show up as an expense?’ and ‘How can I compare one year against another?’
Most business owners don’t expect bookkeepers to understand financial reports, and many accountants are concerned that bookkeepers aren’t sufficiently qualified to provide advice in this area. However, understanding the basic format of a Profit & Loss or Balance Sheet report is quite different to providing financial planning or taxation advice.
A bookkeeper who isn’t afraid to produce financial reports, read them and consider the results is going to be a much better bookkeeper than someone who just does data entry and never considers the consequences. By lifting your skills this extra notch, you can be a great asset to any business (even if your value isn’t listed on the Balance Sheet).
Telling the Story with Profit & Loss
A Profit & Loss report is a story, telling you how your business has fared over the past few days, months ...