How To Understand And Use Financial Statements
UNDERSTANDING FINANCIAL STATEMENTS
Who needs financial statements? Just about everyone.
If you want to understand finances or how to get ahead in life financially, it is imperative that you take the time to understand basic finance. Basic finance includes the financial statement.
If you are a business, the importance of knowing how to do a financial statement or more importantly understand it is vital.
You have to understand where your money is coming from and where it's going out. There are things that you own and monies that you owe.
Taking the time to understand financial statements can easily turn your financial life around from drowning to flying.
These are basic principles that anyone can apply and learn in minutes...and they apply to personal finances or business finances.
Let's take a look at the nuts and bolts of a financial statement.
WHAT KINDS OF FINANCIAL STATEMENTS ARE THERE?
There are basically 2 types of financial statements
- Balance sheet
- Income statement
- Consists of assets (things you own) and liabilities (what you owe)
- Assets - liabilities = your net worth
- Relevant at that moment in time of terms of current assets and liabilities
EXAMPLES OF ASSETS
- Money in bank
- Market value of property you own
- Cars that you own
EXAMPLES OF LIABILITIES
- Car payments
- Credit card debt
Maps out money coming in (income) and money going out (expenses)
Income - expenses = net income
Income statements cover a period of time rather than a moment like balance sheets
SOURCES OF INCOME
- Owned property
- Other income sources such as small business or writing job for instance
- Credit Cards
Using Financial Statements for Financial Planning
As you can see, learning how to create financial statements, whether on a personal or a business level, is invaluable when it comes to financial planning basics.
Knowing where one is at all times in terms of their finances is essential to keeping financially above water.
There are many financial programs available for free on the Internet or you can simply draw up your own from the items listed above.
It's always a good idea to look at your current financial plan and then have a "goal" financial plan worked out, too.
Take the time to study your current financial statement from time to time and see how it's progressing towards your goal financial statement.
Financial planning is the backbone to financial success and learning how to read or create financial statements will help you achieve your financial goals for a lifetime!
WHAT'S A FINANCIAL STATEMENT FOR?
For a personal financial statement, a balance sheet will show what you own and what you owe.
For an income statement, it will show what you made and what you spent. It's just that simple.
The importance of these statements is for determining answers to question such as these.
- Is my income greater than what I'm spending? (Should be to be financially free)
- Is there a way to increase my outside income or should I try and boost my job income?
- By a raise or getting a better job?
- Where is my money going and how can I reduce those expenses?
- Is my net worth increasing or decreasing?
- Is my debt working for me such as buying homes that increase my income or am I wasting money on bad debt like cars, boats, trips or timeshares?
By examining what you see on paper in terms of a financial statement, you can easily see where your strengths are and where you may have weaknesses. Being able to objectively look at the facts and figures will help you plan for the future and increase your net worth, guaranteed!
More Reading on Financial Statements
- Personal financial management
Personal finances, they are extremely important in every ones life. Usually you might be able to say that personal finances are single persons or families affairs with cash. In fact, everyone often gets...
- Writing a financial Statement
It's always a good idea to have a grasp of your personal finances. This is especially important when another company or a 3rd party asks for these details. These could be anything from your bank, credit...
- Reading financial statements - why is that important...
emievil, a Hubber on HubPages wrote a good article about why he became an accountant and the benefits of understanding accounting. I know for a fact that accounting and understanding finances is important...
- The Power of Your Financial Statement
In my hubs, blogs and articles I often talk about the need for financial education and awareness of how money works, and more recently I have been interested in the power of the financial statement. I really...
- Reasons for Using Personal Financial Statement Templ...
Do you want to know your current financial standing but you do not know how to analyze your situation? What you need is to make a personal financial statement. It is very easy to make a personal financial...
- How to Prepare Your Personal Financial Statement Tem...
There are many benefits that you can get from preparing your own personal financial statement template. For example, you will have peace of mind knowing that you are handling your money well. And if you are...
- Analysis of Financial Statement - Introduction
Financial statements are eagerly awaited by investors, bankers and some other concerns. For them, it is the only source of information on a compay they are interested in. By studying these statements, they...
- Understand what the four financial statements are ...
FINANCIAL STATEMENTSAfter transactions are identified, recorded, and summarized, four financial statementsare prepared from the summarized accounting data:1. An income statement presents the revenues and...
- How to Understand Business Financial Statements
If you understand financial statements then you will not just understand financial statements but also the numbers so clikc here..
- importance of financial statements
Importance of financial statement is not what anyone can just keep aside without feeling the heat. A financial statement is very important in every society as many economic and financial decisions are made...
- The Importance of Financial Statements
What accounting is, why it is important, and its uses.
- Financial statement analysis and interpretation for ...
Financial statements analysis is an aspect of business analysis which is the evaluation of a companys prospects and risk for the purpose of making decisions that will lead to progressing and prospering....
More by this Author
This is a rather macabre subject, but let’s face it.....having a funeral can be really, really expensive. When I think about my own funeral, I think I might literally turn over in my grave or something if I...
Let's explore the difference between being frugal and being cheap. Which is better, cheap or frugal? And is there really a difference?
In a tight economy, how much should you pay a pet sitter? It depends on many factors including what kind of pet, age of the pet, what the pet sitter has to do and even how far the pet sitter has to drive to take care...