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.