The income statements provide the CEOs with information about the revenue they collected and the profits made by the company. The income statements allow the managers and owners to get a better idea about the profitability of their organization. Thus, managers prefer to analyze income statements at the end of every month. But the income statements do not reflect all the details of profitability. Financial managers thus analyze the balance sheets along with income statements to get a detailed picture of profitability. Balance sheets and income statements go hand in hand. And that is why accountants need to have a precise balance sheet to get accurate income statements. Some mistakes like not providing accurate expenses and assets data will result in generating both balance sheets and income statements inaccurate.
A brief explanation of the Balance sheet and income statement:
The balance sheet and income statement look the same thing. Both provide insight financial data but each of them uses a different set of variables and factors. The balance sheet provides a snapshot of your business at a point in time. Thus, also called a statement of financial position. The balance sheet is a statement of your organization’s assets, net worth, and liabilities prepared at the end of every accounting period of month or year. In contrast, the income statement is a cumulative statement of your income over an interval of time. The assets include inventories, cash, office furniture, and all those things that your company owns. Also, the liabilities include bank debt, accrued expenses, accounts payable, and everything that your company owes to others.
The net worth or equity is the amount that is left with assets reduced by liabilities. Your net worth amount helps the manager to analyze whether the business is making a profit compared to last months. Now problems may arise in calculations if the data entered is inaccurate. Suppose you record expenses as assets on the balance sheet, this will reflect on the income statement. The income statement will be overstated and shall make the CEOs incapable of quickly assessing business growth.
How the income statement and balance sheet work simultaneously:
Suppose you need to send some employees to an event where having an iPhone is a must. Now you spend INR 3 lakhs on iPhones but the bookkeeper records this amount as an asset instead of recording this as an expense. As a result, the balance sheet will show more profit made than actual and lower expenses. The error will cost you badly the next time when you goto price that job. You will not provide the correct bid because the true costs were not recorded.
Why an accurate balance sheet and income statement are a must!
Many business owners complain about the cash flow crisis and can’t do precise cash flow forecasting. The answer is probably hiding in their balance sheets. If your company buys iPhones as an asset taking the money from profit amount; then it is not reducing the profit but the cash is flowing out. The company managers must look into their balance sheet regularly every month. They should compare it with last month’s balance sheet to avoid discrepancies regarding the cash flow crisis.
What Mfhills Services Can Do For You:
One of the best ways to deal with the finance sector is to outsource all the accounting and bookkeeping needs. This will ensure that you receive an accurate number at the end of each month. Outsourcing accounting professionals can provide you with seamless reports to ensure more revenue generation and overall business growth. Mfhills allows you to pick which sector of your controller section, accounting, and bookkeeping you need to outsource. We work with your internal employees to ensure your business need is under proper surveillance. And would provide a financial report at the end of each month. The cloud-based technology along with the latest accounting software helps you to address where you have to focus. Along with outstanding client services we also provide additional service when required to run your business. We can provide the ultimate solution with
- Cash flow forecasts
- Cost cuttings and maintaining finances
- Bank Reconciliation and accounting
- Payroll review