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Balance Sheets and P&Ls: Putting Your Financials in Focus

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Balance Sheets and P&Ls: Putting Your Financials in Focus

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wendy-masias-for-web-square.jpgAs a business owner, you're required to provide a variety of financial forms to different entities, including investors, lenders and the IRS. You might find this process a chore. Instead, think of it as an opportunity. These forms are like cameras that give you a clear, comprehensive picture of your business.

Let's look at two of the more important financial reports: your balance sheet and your profit & loss (P&L) statement. Your balance sheet is like a snapshot: it captures a moment in time. The P&L statement is more like a video that documents your business over a longer period.

Your balance sheet details all assets, liabilities and equity for a specific date. It encompasses everything your business owns and everything it owes at that particular moment.

In other words, the balance sheet shows the worth of your business.

The P&L statement, on the other hand, covers more time—usually a fiscal quarter, but sometimes an entire year. It summarizes the revenues earned and expenses/costs incurred during that reporting period, showing whether you're making money, losing money or breaking even.

And that, in turn, answers the business owner's most important big-picture question: Is the company generating profit?

If the answer is no, the P&L statement can help address some important follow-up questions, such as:

  • Is profitability even possible?
  • Which costs and expenses can be eliminated or reduced?
  • Which sources of revenue can be enhanced?

Getting Better Resolution

When you need an accurate picture of how your business is performing—maybe you're preparing a presentation for investors or strategizing with your team about important business decisions—remember that these two statements are valuable tools.

Consult with your bookkeeping-services provider for more information.

Read more Supporting Strategies blogs about understanding financial information:
John Gleason’s Learning from your Trial Balance
John Gleason’s What is Double Entry Accounting

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Wendy Masias

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Wendy Masias

Legal and Tax Disclaimer

This website is created by Supporting Strategies to provide general bookkeeping and accounting information only. Supporting Strategies does not provide tax, legal or accounting advice, and the information contained herein is not intended to do so. As such, the information provided should not be used as a substitute for consultation with professional tax, legal, and accounting advisors, and you should consult with a tax, legal and accounting professional before engaging in any transaction.