Podcast
Questions and Answers
What is the purpose of bookkeeping?
What is the purpose of bookkeeping?
Which financial statement shows how much a company earned and spent over a period of time?
Which financial statement shows how much a company earned and spent over a period of time?
What does a negative net income on the Income Statement indicate?
What does a negative net income on the Income Statement indicate?
Which financial statement lists assets, liabilities, and owner's equity?
Which financial statement lists assets, liabilities, and owner's equity?
Signup and view all the answers
What are liabilities in the context of financial statements?
What are liabilities in the context of financial statements?
Signup and view all the answers
Which statement is used to show what happened with a company's finances during a specific period of time?
Which statement is used to show what happened with a company's finances during a specific period of time?
Signup and view all the answers
What do Cash Flow Statements show for a company?
What do Cash Flow Statements show for a company?
Signup and view all the answers
Where do cash inflows primarily come from for companies?
Where do cash inflows primarily come from for companies?
Signup and view all the answers
Who typically creates Cash Flow Statements for companies?
Who typically creates Cash Flow Statements for companies?
Signup and view all the answers
Why do companies hire professional accountants to analyze their records?
Why do companies hire professional accountants to analyze their records?
Signup and view all the answers
Why is having accurate records important when filing annual returns with the IRS?
Why is having accurate records important when filing annual returns with the IRS?
Signup and view all the answers
Study Notes
Bookkeeping is the process of recording business transactions so they can be used later when preparing tax returns and financial reports. It involves keeping track of all money coming into and going out of your business. Accounting, on the other hand, deals with how you keep those records and also includes analyzing your finances to make sure everything makes sense. One major part of bookkeeping and accounting is creating financial statements. These statements show what happened with your company's finances during a certain period of time. There are three main types of financial statements: the income statement, balance sheet, and cash flow statement. Here is some more information about each one:
The Income Statement - This shows how much your company earned and spent over a period of time. Costs like rent, salaries, materials, etc., are deducted from earnings to get net income. If this number is negative, it means your company lost money; if positive, the company made money.
Balance Sheet - Also called the statement of financial position, this lists assets, liabilities, and owner's equity. Assets are things a company owns that have value, such as accounts receivable, inventory, property, etc.. Liabilities are debts a company owes, such as loans, taxes, credit cards, bills, etc. Equity refers to items owned by stockholders, including common stocks, preferred stocks, retained earnings, treasury stock, etc.
Cash Flow Statements - These show where a company gets its cash from and where it spends it. They help companies plan future activities. Cash inflows come from selling goods or services, collecting fees, receiving dividend payments, getting interest income, etc. Cash outflows go towards paying suppliers, employees, rent, utilities, taxes, insurance, advertising expenses, etc.
Bookkeepers create these financial statements using software programs designed specifically for this purpose. Most people hire professional accountants to analyze their records and come up with ways to save money and increase profits. For example, a good accountant can suggest cutting back on unnecessary spending or suggesting new products to sell that would bring in extra revenue. No matter whether you do your own books or pay someone else to do them, having accurate records will always be important when filing your annual return with the IRS.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
Learn about the importance of financial statements in bookkeeping and accounting, including the income statement, balance sheet, and cash flow statement. Discover how each statement provides information on a company's earnings, assets, liabilities, and cash flow activities.
