Transcript Three Important Financial Statements

TWO IMPORTANT FINANCIAL
STATEMENTS
SBM 110
INCOME STATEMENT
The income statement’s primary role is to show a
profit or loss over time. Using the difference between
revenues (sales) an expenses (costs) the entrepreneur
can determine a profit or loss.
PARTS OF AN INCOME STATEMENT
The following are parts of an income statement:
• Revenue
• Cost of goods sold (COGS)
• Gross Profit
• Other variable costs (VC)
• Fixed operating costs
• Earning before interest and taxes (EBIT)
• Pre-tax profit
• Taxes
• Net profit or loss
BALANCE SHEET
A balance sheet is a way to quickly look at
a company’s financial strategy and health.
The balance sheet shows the assets, the
liabilities, and the net worth of the
business. The net worth of a business is
also known as owner’s equity.
ASSETS
Assets are broken into two groups: long-term and short-term
assets.
Short-term assets are also known as current assets. Short-term
assets could be quickly converted into cash. This is known as
liquidation. These are also assets that are generally used in one
year or less.
Long-term assets are those assets that take more than a year to
use. Equipment, furniture and real estate fall into this category.
LIABILITIES
A liability is a debt the business owes.
Current liabilities are those that are scheduled to
be paid within one year.
Long-term liabilities are those that are scheduled
to be paid in more than one year.
NET WORTH
Assets – Liabilities = Net Worth
If assets are greater than liabilities,
net worth is positive. If liabilities are
greater than assets, not worth is
negative.