Accounting ABCs on LinkedIn: How the Profit & Loss CONNECTS to the Balance Sheet (2024)

How to analyze a balance sheet1️⃣What is a balance sheet?- A balance sheet shows you what a company owns and owes- In the balance sheet you get an overview of 3 things:oAssetsoLiabilitiesoShareholders Equity2️⃣ Balance sheet = snapshot- Balance sheet = snapshot -> at a certain point in time- Income statement and cash flow statement = video -> measured over a period of time3️⃣ Assets:- Shows you everything the company owns- A distinction can be made between current assets and non-current assetsoCurrent assets: assets that can be converted into cash within 1 yearoNon-current assets: assets that are harder to convert into cash4️⃣ Liabilities:- Shows you how much the company owes- A distinction can be made between short-term liabilities and long-term liabilitiesoShort-term liabilities: a financial obligation that has to be paid within 1 yearoLong-term liabilities: debt that has to be paid > 1 year5️⃣ Shareholders Equity:- The shareholders equity shows you how much money the owners (shareholders) have invested in the company- Shareholders equity = total assets – total liabilities6️⃣ Great ratios to analyze a balance sheet:- Interest coverage: shows you how easily a company can pay back the interests on its outstanding debt- Net Debt / free cash flow: shows you how many years it would take the company to pay down all its debt when it would use all available free cash flow________🤔That's it for today. Do you read a lot of 10-Ks? Join the discussion in the comments 👇________➕ Follow for more Accounting, finance, business, and cash flow insights.🔔 Ring the bell at the top of my profile to get notified of new postsNafees Ul Hassan ✨Virtual Bookkeeping and Ecom Expert✨________#entrepreneur #finance #business #bookkeeping #accounting #professionalgrowth#personalgrowthjourney#bookkeepingservices#accountant#bookkeeper#growthmindset#trendingtopic#balancesheet #financialadviser#financialanalysis#financialcheatsheet #cashflow

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Balance sheet vs income statement 1️⃣ Definition:- Balance Sheet: A snapshot of a company's financial position at a specific point in time.- Income Statement: A summary of a company's revenues, expenses, and profits over a given period.2️⃣ Main Components:- Balance Sheet: Assets, Liabilities, Equity.- Income Statement: Revenues, Expenses, Net Income.3️⃣ Purpose:- Balance Sheet: Shows the financial health and solvency of a company.- Income Statement: Reveals a company's profitability during a specific time frame.4️⃣ Timeframe:- Balance Sheet: A specific date (e.g., end of a quarter or year).- Income Statement: A specific period (e.g., monthly, quarterly, or annually).5️⃣ Focus:- Balance Sheet: On the company's financial position at a given moment.- Income Statement: On a company's performance over time.6️⃣ Primary Elements:- Balance Sheet: Assets (current and non-current), Liabilities (current and non-current), Equity.- Income Statement: Revenues (sales, interest income, etc.), Expenses (cost of goods sold, operating expenses, etc.), Net Income.7️⃣ Reporting Frequency:- Balance Sheet: Typically reported quarterly and annually.- Income Statement: Can be reported monthly, quarterly, and annually.8️⃣ Regulatory Requirements:- Balance Sheet: Required for financial transparency and often subject to regulatory scrutiny.- Income Statement: Essential for tax reporting and external financial disclosures.9️⃣ Example Items:- Balance Sheet: Cash, Accounts Receivable, Long-Term Debt, Common Stock.- Income Statement: Sales Revenue, Cost of Goods Sold, Operating Expenses, Net Profit. Let's keep learning together!#Finance #BalanceSheet #IncomeStatement #FinancialEducation

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What is balance sheet ?A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It presents the company's assets, liabilities, and shareholders' equity. The balance sheet follows the fundamental accounting equation: Assets = Liabilities + Shareholders' Equity.Here's a breakdown of the components of a balance sheet:1. Assets: These are the resources owned by the company, which can be tangible (such as cash, inventory, property, and equipment) or intangible (such as patents or trademarks).2. Liabilities: These are the company's obligations or debts, including loans, accounts payable, and accrued expenses.3. Shareholders' Equity: Also known as owners' equity or net worth, this represents the residual interest in the company's assets after deducting liabilities. It includes the initial investment by shareholders and retained earnings (profits reinvested in the business).The balance sheet provides insights into a company's liquidity, solvency, and financial health. It is often used by investors, creditors, and analysts to assess a company's ability to meet its financial obligations and evaluate its overall financial performance.Follow Yashika Sharma for more such posts!

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The Balance Sheet: A dive into the fundamentals.The balance sheet or the statement of financial position is used to see the current standing of the business. Think of it this way, it's like going into a room and taking a picture, when you develop that image, you see everything in the room exactly as it was when you took that picture. This is precisely what a balance sheet is, it tells you the current position of the business, that is why it is presented as “balance sheet AS AT the end of a period”, showing the exact position of everything at that particular point in time—the end of the period.That being said, let's discuss the three elements of a balance sheet. They are the assets, the liabilities and the equity as shown in the equation below; Assets = Liability + Equity.This is commonly referred to as the accounting equation A = L + E.📌 Assets: Assets are economic resources arising as a result of past actions from which future economic benefits are expected to flow into the company. What we are trying to say here is that assets are the balance sheet items that are owned by the company, and because they are owned by the company, the company will reap benefits in the future. Examples of assets are your building, machines, furniture, patents and licenses. The ones you can physically see and touch are tangible while the ones you can't see and touch are intangible.They are typically divided into long term assets and short term assets. The difference is in what I would call the holding periods, that is, short term assets are expected to last or be held for not more than 12 months, a company may get a drilling license for 6-9 months, this is an example of a short term asset. Long term assets are expected to last for more than 12 months, like your tables and chairs, computers and machines etc.📌 Liabilities are the balance sheet items that are owed by the company. Just like the assets, they are divided into short term; they need to be repaid under a 12 months period. They are usually an overdraft and money owed to suppliers, then long term liabilities; these are due in over 12 months and are long term credits.📌 Equity shows the net financial standing of the company, that is, the difference between what the company owns and owes. Remember this equation A = L + E? It can also be rewritten as E = A - L. Essentially, this equation shows that if you subtract what the company owes (Liabilities) from what it owns (Assets) what is left is for the shareholders or the owners of the business (Equity).🖋️🖋️🖋️🖋️ An important thing to note is that the balance sheet does not account for the future income, hence, it may not be fair to assume that equity is the fair value of the business.In another article, I would describe the key subtopics in the balance sheet, but at the moment, what we have talked about today is sufficient to give you a solid background into what a balance sheet is and does.

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A bullet proof balance sheet + 3-way rolling forecast are essential to managing your finances properly.The biggest mistake I see most SME's making is that their balance sheet is only bullet proof, once a year for the EOFY accounts. This means for 11 months you've got timing differences and erroneous transactions (ie rubbish) laying 'dormant' in your balance sheet, waiting to distort your P+L, making cashflow forecasting more difficult and distorting your KPI'sEven a broken clock is right twice a day, but SME owners need reliable information to make decisions. Do yourself a favour and make sure you have these 2 things.

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💼 Trial Balance vs. Profit and Loss Statement vs. Balance Sheet: A Holistic View of Financial Analysis🔍 In the realm of financial analysis, understanding the Trial Balance (TB), Profit and Loss (P&L) Statement, and Balance Sheet is essential. Let's delve into their differences and purposes:Trial Balance (TB):Purpose: Acts as an intermediary step in the accounting cycle, listing ledger accounts and their balances to ensure accuracy.Timing: Prepared at the end of an accounting period to verify the equality of total debits and total credits.Content: Focuses on confirming transaction accuracy and ledger balance before finalizing financial statements.Profit and Loss (P&L) Statement:Purpose: Summarizes a company's revenues, expenses, gains, and losses over a specific period, providing insights into financial performance.Timing: Prepared after the TB, offering a comprehensive view of profitability and operational efficiency.Content: Showcases net income or loss, reflecting revenue trends, cost structure, and overall financial health.Balance Sheet:Purpose: Provides a snapshot of a company's financial position at a specific point in time, showing assets, liabilities, and shareholders' equity.Timing: Prepared alongside the P&L Statement, offering a complementary view of financial health.Content: Highlights the company's liquidity, solvency, and overall financial strength, aiding stakeholders in assessing its stability and growth potential.📈 Why All Three Matter:Trial Balance (TB):Essential for ensuring accuracy in financial reporting and maintaining integrity in accounting records.Helps identify discrepancies and ensure compliance with accounting standards.Profit and Loss Statement (P&L):Offers insights into profitability, revenue generation, expense management, and operational efficiency.Guides decision-making and strategic planning by providing a clear picture of financial performance.Balance Sheet:Provides a holistic view of a company's financial health, showcasing its assets, liabilities, and shareholders' equity.Assists stakeholders in assessing liquidity, solvency, and overall financial strength, crucial for investment decisions and risk management.💡 Understanding the distinctions and synergies between the Trial Balance, Profit and Loss Statement, and Balance Sheet is fundamental for conducting comprehensive financial analysis and making informed business decisions. #Finance #Accounting #IncomeStatement #TrialBalance #BalanceSheet #FinancialAnalysis

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Would you rather look at the Balance Sheet 🏦 or Profit & Loss Statement? 📈As a business owner or finance professional, this is an interesting debate! Both financial statements are crucial for understanding your company's performance and financial health.The Balance Sheet provides a snapshot of your assets, liabilities, and shareholders' equity at a specific point in time. It shows what your business owns vs. what it owes - giving insight into your company's net worth and financial position.On the other hand, the Profit & Loss (P&L) Statement focuses on income and expenses over a period of time, typically a month, quarter or year. It reveals your company's profitability, showing whether you made a net profit or loss.Personally, while I value the balance sheet for its big picture view, I tend to gravitate more towards the P&L. Analysing revenue streams, cost control, and bottom-line profits or losses is crucial for managing cash flow and making operational decisions.That said, the two statements are interconnected. The P&L impacts assets and equity on the balance sheet over time. Truly understanding your finances requires reviewing both regularly.What about you? Are you more of a Balance Sheet die-hard or a P&L fanatic? 👀 Let me know which one you prefer reviewing and why!#balancesheet #profitandloss #financialstatements #businessfinance #accounting#accountant #bookkeeping #VAT #payroll #accountingservices#Nationwide #England #Scotland #Wales #WestMidlands

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What is a Balance Sheet? Exploring the Balance Sheethttps://lnkd.in/gXVEBfB6....#Finance #balancesheet #finbiztoday

FINANCIAL STATEMENTS Financial statements are written records that convey the business activities and the financial performance of a company. Financial statements are often audited by government agencies, accountants, firms, etc. to ensure accuracy and for tax, financing, or investing purposes. For-profit primary financial statements include the balance sheet, income statement, statement of cash flow, and statement of changes in equity. Nonprofit entities use a similar but different set of financial statements.1) Income Statement = An income statement is a financial statement that shows you the company’s income and expenditures. It also shows whether a company is making profit or loss for a given period. The income statement is also known as a profit and loss statement, statement of operation, statement of financial result or income, or earnings statement.2) Balance Sheet = The term balance sheet refers to a financial statement that reports a company's assets, liabilities, and shareholder equity at a specific point in time. Balance sheets provide the basis for computing rates of return for investors and evaluating a company's capital structure.3) Cash Flow Statement = The cash flow statement (CFS), is a financial statement that summarizes the movement of cash and cash equivalents (CCE) that come in and go out of a company. The CFS measures how well a company manages its cash position, meaning how well the company generates cash to pay its debt obligations and fund its operating expenses. As one of the three main financial statements, the CFS complements the balance sheet and the income statement. In this article, we’ll show you how the CFS is structured and how you can use it when analyzing a company.#FinancialStatements #IncomeStatement #BalanceSheet#CashFlowAnalysis #FinancialReporting#AnnualReport #ProfitandLoss#FinancialTransparency #FinancialAnalysis #CorporateFinance#InvestorRelations #AccountingStandards #EarningsReport#FinancialData #AuditandAssurance #FinancialDisclosure #FinancialPerformance #FinancialManagement#BudgetingandForecasting#GAAPCompliance

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Balance Sheet VS Income Statement