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Understanding Your Financial Statements

Dennis L. Thompson, CPA, CFE

206-390-9432www.dlthompsoncpa.com

Financial Statements-Compass

For Your Business

• Ultimate Goal of Accounting System

• Best Friend or Worst Enemy

• Tells You Where Your Company

– Has Been

– Where It Is Now

– Where It Is Going

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Categories of Financial

Statements

• Income Statement

– Where You Have Been

• Balance Sheet

– Where You Are Now

• Cash Flow Projection & Budgets

– Where You Are Going

Recommended Reading-

Jim Schell

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Profit & Loss

• Measures Business Activity Over a Period of Time

• Income & Expense Accounts Are Temporary & Closed to Retained Earnings

• Expenses Can Be Classified As Variable or Fixed

• Most Useful If Compared to Different Periods

Profit & Loss – One Year

Variable Expenses

Gross Margin

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Profit & Loss - Comparison

Profit & Loss – By Job

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Balance Sheet - Assets

Balance Sheet-Liabilities &Equity

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Balance Sheet - Comparison

Balance Sheet - Comparison

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Statement of Cash Flows

Increase

Increase

Increase

Decrease

Decrease

Sales By Customer Summary

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Accounts Rec – Aging Analysis

Purchase By Vendor Summary

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Accounts Pay – Aging Analysis

Budgets

• Why Budget

– Forces You to Think & Plan About Your

Business

– Sets Expectations for Employees

– Early Warning System

– Can Help Detect Fraud

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Budgets

Budget Vs Actual

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Never Run Out of Cash

Never Run Out of Cash-

Philip Campbell

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Sample Cash Flow Projection P1

Sample Cash Flow Projection P2

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Summary

• Financial Statements Reflect the Health of Your Business

• Primary Audiences

– External – IRS, State, Banks, Investors

– Internal – You – To Help Manage

Business

• Most Problems Don’t Happen Overnight

• Financial Statements Serve as Early Warning

Summary

• Financial Statements Must Be Analyzed and Acted Upon

• It is Difficult to Be Successful in the Game of Business if You Don’t Know How to Keep

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