Accounting: Lesson 2

Financial Statements

Senior business specialist, Theresa Sylvia, discusses financial statements.

Topics:

Video Lesson Topics

- Cash Basis or Accrual Basis

Before you begin your financial statement, you should determine what basis of accounting the business will use. The major difference between the two is that with cash basis, it is an expense when you spend cash. When you receive cash, it is a revenue. However, with accrual basis, you recognize revenue when it is earned, not when it is received. For example, if you are a contractor and bill based on percentage of completion, or a forty-five to sixty day payment, you will accrue your revenue when it is earned, not when it is received. 

- Profit and Loss Statement

The profit and loss statement is also known as the income statement or the trial balance. This statement should include the following:

  • Gross Sales- The sales of your services or products
  • Cost of Goods Sold- Direct costs of what it took your business to sell those products or services (raw materials, labor, packaging, shipping)
  • Net Sales- Deduct your expenses from your net sales (mortgage, rent, insurance, repairs, utilities, etc.). Once you have deducted your expenses, you are left with your net income or net loss. 

- Balance Sheet

The balance sheet contains your assets, liabilities, and retained earnings. 

  • Assets- There are both current and liquid assets. Liquid assets would be cash. Hard assets are vehicles, inventory, machinery, and equipment. 
  • Liabilities- There are long-term and short-term liabilities. Any liability that is twelve months or less is short-term; anything over twelve months is long-term. 
  • Retained Earnings- Liabilities subtracted from assets gives you retained earnings. Retained earnings are earnings by the business that the owner has not taken from the business. 

- Cash Flow Statement

The cash flow statement shows all of your business’ cash. You create one so each month you know exactly where your cash went. 

Topics & Lessons

Each Below Topic Contains a Video Lesson and Helpful Downloadable Information

9:32

Basic Accounting

5:29

Financial Statements

12:31

Common Accounting Questions and Errors

4:07

Accountants, CPAs, and Bookkeepers

6:44

Accounting Systems and Software

6:36

Taxes (Links to Taxes/IRS Videos)

7:08

Why it Matters

6:03

Types of Tax Obligations

11:18

Franchise & Excise Taxes

6:35

Payroll Taxes

3:16

Sales Tax

6:45

IRS and State Tax Resources and Due Dates

5:26

Selecting a Business Tax Professional

sunpath-light

Want to learn more about how this topic relates to your business?

Schedule a meeting with one of our consultants! All counseling sessions offered by the TSBDC are no-cost and provided by our staff of professional business consultants.