FM basic concepts

1. Understanding
Financial Statements
For Small Business Owners

2. Owners - Yes, Really!
Lenders - For Comparative YTY Statements
Investors - To See Performance
Tax Preparers
Who are the users of Financial Statements?

3. Shows Income / Revenue
Shows Expenses
Profit & Loss Statment
Covers a Period (Month,
Quarter, Year)
If Revenue > Expenses
= Net Income

4. Shows Values at a Point in Time
Should Balance
Balance Sheet
Assets = Liabilities + Equity

5. Assets = Liabilities + Equity
7,000 = 5,500 + 1,500

6. What are Retained Earnings (R/E)?
- The accumulation of previous years' net
incomes or net losses.
- Each year, the income or loss is added to
the R/E beginning balance.
- Negative R/E tells us the company has not
been profitable.

7. The P&L and Balance Sheet "Hold HandS"!

8. What if Revenue increaSe by $200?

9. What if ExpenSeS increaSe by $200?

10. New Office Furniture CoSt $4000
Yearly Amortization iS $400

11. Points to Remember About
REVENUE & EXPENSES
and Accrual Accounting!

12. - Revenues are recorded when EARNED
and Not when money is received. This is
called the Revenue Recognition Principle!
- Expenses are to be matched to the
period when INCURRED and NOT when
paid. This is called the Matching Principle.
It is also to be matched to the revenue it
helped generate!