Businesses get the money; Accountants keep the books. Accountants keep businesses, governments and “not-for-profits” groups working by following systematic methods of recording their financial activity.
If you invest your money in a business or real estate, put you savings in a credit union, or are a member of a nonprofit association you will likely receive regular financial reports showing how you money is used to increase profits that also will increase your investment as well. You should read these financial reports carefully, but if you don’t; or if you do but don’t understand what you’re reading — this Cheat Sheet can help you understand the language and necessity of accounting.
Believe it or not, financial statements are not for accountants. They are for the lenders and investors of the business and its managers. They are the ones that need to know how their investment is used, so read financial statements, and it can be a challenge.
What information is reported in the financial statement? Just the financial odds and ends about the business: profits or losses of the business, whether it is financially sound, and whether its cash flow is strong or weak.
What about the bottom-line: the profits or losses of a business? The last line is the income statement. summarizes the sales, revenue, income, expenses, and losses of the business for the period. Public companies also report earnings per share in their income statements; but Private Companies don’t have to. The summary of the assets and liabilities of the business is found in in the balance sheet.
If you’ve invested in a company, knowing the information on a financial statement is the best way to keep track of your investment.