Knowing Your Financial Statements

Question: What financial statements do I need to have for my accountant?

Answer: The two standard financial statements you need to produce are your balance sheet and your profit and loss statement (also known as an income statement).

A balance sheet is a financial snapshot on a given day. It is dated "as of" a certain date. It shows what you own (assets) and what you owe (liabilities) on that day. The difference between assets and liabilities is your equity, or the net portion that is yours. The basic formula in accounting is:

Assets - liabilities = equity

The profit and loss, or income statement, covers a period of time (a month, quarter or year, for instance). It lists your gross income, cost of goods sold, operating expenses and net income. This tells you how your business is doing for that period of time. It also provides answers to your operating strategy, such as: Am I charging enough money for the sales I am making? How much have I spent on advertising? Am I making enough net profit for the time and effort I am expending?

These two reports, in conjunction with the supporting details, will be what your accountant needs to file taxes and spot potential problems in your business. Together, they tell the story of your business.

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