financial statements

Bookkeeping Basics – everything you need to know about financial statements

The first thing we want to clarify is that financial statements are not the same as bank statements.

For starters, a financial statement gives you a clearer overview of how your business is looking. Your bank statement just gives you a list of transactions and, therefore, skirts over the underlying financial position your business is in.

Financial statements give you a clear indication of the financial health of your business.

Bookkeeping basics

Regardless of what your business does, there are two things that always happen: you make money, and you spend it.

Keeping track of that income and expenditure can be a nightmare because you’re focused on running your business. That’s where a bookkeeper comes in. They will prepare information for your accountant and document your daily financial transactions so you can get on with what you do best.

If you think bookkeepers and accountants perform the same function, think again. Later, we’ll take a quick look at the documents your accountant will deal with, but for now we want to concentrate on the role of your bookkeeper.

Your bookkeeper looks after the daily transactions, such as:

  • Cash flow statement
  • Accounts receivable and accounts payable
  • Recording incoming cash
  • Account reconciliations
  • Process payroll
  • Sales invoicing
  • Credit control

But a bookkeeper is far more than a number cruncher. Their input will help you make better budgeting decisions because, with their help, you’ll know exactly where your money is going. This in turn gives you peace of mind because you have a better understanding of the financial health of your business at all times and, come your end of year, your books will all be in order.

Types of financial statements

Earlier we mentioned accountants. Using the information provided by your bookkeeper, your account will prepare:

  • Balance sheet – a snapshot of your business’s assets, liabilities, and equity at a single point in time, giving a valuable insight into how your business is performing.
  • Cash flow forecast – shows the financial standing of your business at a specific point in time, a cash flow forecast helps you determine your future bank balance.
  • Profit and loss statement – gives you a granular view of your business. It breaks down your income and expenditure into categories so you can see exactly what you’re spending and where.

Why financial bookkeeping basics are important

As you can see, financial statements are vital when it comes to running your business. To summarise, they help you:

  • Make better decisions
  • Keep track of your accounts receivable and accounts payable
  • Prepare for tax time
  • Prove the success of your business to potential investors
  • Catch costly mistakes before they happen (e.g., theft or fraud)

Time Wise VA work with a wide range of small- to medium-size businesses to make their working day that little bit easier. Call the team on 0161 211 9837 for a chat about how they can help your business.

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