Accounting 101: Do You Understand The Three Financial Statements? | AD SME

Accounting 101: Do You Understand The Three Financial Statements? 

By: Abu Dhabi SME Hub
Accounting, Financial Planning

The profit and loss (P&L) or “Income statement” is a financial statement that summarizes the revenues, costs, and expenses a company incurs.

Investors looking at companies often analyse P&L margin metrics as a percentage of revenue – the gross profit, operating profit, and net profit in particular.

So why should you care about your own income statement?

Watch the video to learn more!

A balance sheet is a financial statement that provides a snapshot of what a company owns and owes, as well as the amount invested by shareholders at a specific point in time.

The balance sheet is not typically used to create a budget or manage business expenses: rather, it presents what the company owns and owes, and highlights payments that need to occur soon: for example, bills owed to a vendor in the upcoming month.

So why should you care about your Balance Sheet?

Watch the video to learn more!

A company will typically receive cash through operations and external investments; and will need to pay for business activities and investments.

The cash flow statement summarises all these cash-related activities – whether inflows or outflows – impacting a business during a specified period of time In a nutshell, it provides business owners, as well as potential investors or loan officers with details on how the company’s cash is being spent.

So why should you care about your cash flow statement? Watch the video to learn more!

The Profit & Loss, the Cash Flow Statement, and the Balance Sheet are three core statements intricately linked to one another.

Every public company issues them quarterly and annually to provide an overview of its financial health and ability to meet short-term and long-term financial obligations.

So what is the difference between the three different financial statements, and do you understand how you should use them? 

Take the quiz to test your knowledge!

What is not covered in the P&L?

1 / 7

Why is the cash flow statement important to your business?

2 / 7

What differentiates the cash flow statement from the P&L?

3 / 7

What does the balance sheet include at any point in time?

4 / 7

True or False? The cash flow statement can help a business owner or investors understand what cash flow issues the company may potentially deal with.

5 / 7

What is the correct balance sheet formula?

6 / 7

True or False? Equity, added together with the Liability total, should match or balance with your total assets.

7 / 7

Lessons

01. Financials: Zooming in on the ‘Profit & Loss’ (P&L) or Income Statement
02. Financials: Zooming in on the Balance Sheet
03. Financials: Zooming in on the Cash Flow Statement
04. Quiz: Do you understand the Three Financial Statements?
Lessons

Lessons

01. Financials: Zooming in on the ‘Profit & Loss’ (P&L) or Income Statement
02. Financials: Zooming in on the Balance Sheet
03. Financials: Zooming in on the Cash Flow Statement
04. Quiz: Do you understand the Three Financial Statements?

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