Balance sheet, income statement and cashflow

You’ll need: Balance sheet reports, Income statement reports, Cashflow reports — if you cannot see these, the module may be switched off for your business or outside your permissions. An administrator can change either.

The three reports people outside your business ask for. Each answers a different question, and a business is only understood by reading all three.

Income statement: did we make money

An income statement covers a period — start date to end date — and shows revenue less costs.

It answers whether the business earned more than it spent over that stretch. Under accrual it counts what was earned and owed; under cash, what actually moved.

Balance sheet: what do we own and owe

A balance sheet is as of a date, not a period. It is a photograph: assets on one side, liabilities and equity on the other.

The distinction from the income statement matters. A period report describes a stretch of time; a balance sheet describes a single moment. Asking for “the balance sheet for March” really means as of the last day of March.

Cashflow: where did the money actually go

A cashflow report covers a period and can be filtered to a single cash account.

It exists because of the oldest trap in business: profit is not cash. A profitable business can run out of money, and a loss-making one can be flush for months.

   profitable, no cash    customers have not paid yet;
                          you bought stock that has not sold

   cash, no profit        a customer prepaid;
                          you are living off a loan

Both are real, both are common, and only reading two reports together tells them apart.

Read them as a set

Income statement — is the business fundamentally working?
Cashflow — can it pay people this month?
Balance sheet — what does it own, and what does it owe?

A business can look fine on any one and be in trouble. Growing revenue with worsening cash means you are financing your customers. Healthy cash with poor profit means something is being consumed that has not shown up yet.

Same period, same settings

When you circulate these, run them for the same period with the same chart and basis, and say which you used. Three reports produced under different settings and compared as a set is the mistake from lesson 5, with more consequence.

Try it

On staging.feeprime.com, run all three for the same month. Then raise an unpaid invoice and run them again — watch which figures move and which do not.