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Income statements & cash flow


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Income statements & cash flow

  1. 1. <ul><li>Explain the importance of an income statement </li></ul><ul><li>Identify the parts of an income statement </li></ul><ul><li>Prepare an income statement </li></ul><ul><li>Understand how cash flow affects entrepreneurs </li></ul><ul><li>Demonstrate a burn-rate calculation </li></ul>
  2. 2. <ul><li>Income statements are prepared periodically to show how a business is performing: </li></ul><ul><ul><li>Monthly </li></ul></ul><ul><ul><li>Quarterly </li></ul></ul><ul><ul><li>Annually </li></ul></ul><ul><li>Income statements differ in how they show their variable expenses. They may appear under: </li></ul><ul><ul><li>Cost of Goods Sold </li></ul></ul><ul><ul><li>Cost of Goods Manufactured and Sold </li></ul></ul><ul><ul><li>Cost of Services Sold </li></ul></ul>
  3. 3. <ul><li>Income statements generally include these parts: </li></ul><ul><li>Revenue . The money the business receives from selling products or services. </li></ul><ul><li>Cost of Goods Sold . The cost of producing the goods or services. </li></ul><ul><li>Gross Profit . Net sales minus the cost of goods sold. </li></ul><ul><li>Operating Expenses . The expenses of running the business. </li></ul><ul><li>Pre-Tax Profit . Gross profit minus the operating expenses. </li></ul><ul><li>Net Profit (Loss) . Pre-tax profit minus taxes. </li></ul>
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  6. 6. <ul><li>To prepare an income statement: </li></ul><ul><li>Determine the business's Revenue. </li></ul><ul><li>Calculate the Cost of Goods Sold. </li></ul><ul><li>Determine the Gross Profit. </li></ul><ul><li>Calculate Operating Expenses. </li></ul><ul><li>Determine the Pre-Tax Profit. </li></ul><ul><li>Determine the Net Profit or Loss. </li></ul>
  7. 7. <ul><li>The cash flow equation is: </li></ul><ul><li>A cash flow statement is a financial document that records inflows and outflows of cash when they actually occur. </li></ul>
  8. 8. <ul><li>Five ways to avoid being caught without enough cash to </li></ul><ul><li>pay your bills are: </li></ul><ul><li>Collect Cash as Soon as Possible </li></ul><ul><li>Pay Bills Close to the Due Date </li></ul><ul><li>Keep Track of Your Cash </li></ul><ul><li>Lease Equipment </li></ul><ul><li>Keep Inventory to a Minimum </li></ul><ul><li>Cash flow is cyclical for many businesses, meaning that it </li></ul><ul><li>varies according to the time of year. </li></ul>
  9. 9. <ul><li>Use the burn rate to calculate how long a company can go without revenue. </li></ul>