Small businesses must be well informed to survive in a competitive environment and judi online one of the vital competency they must develop is to read and understand important financial statements. Understanding essential financial statements such as ‘Trial Balance’, ‘Balance Sheet’, and ‘Profit and Loss’ statements is paramount as these are very important reports for small businesses to ensure their competitiveness in the market.
Running a business without understanding these financial reports is like driving a car without a dashboard. Let’s look into each of these financial reports in detail..
Businesses engaged in financial activities need constant information on a variety of parameters such as market demand, market share, price, competitive activity, cost of production, investment, cost of capital, and statutory levies. Of these, one of the most vital one is financial information such as revenues, costs, capital, salaries, loans and investments. If you take an example of a household, information on items such as salary earned by the principal wage earner, expenses incurred on running the household, school fees and price of vegetables would be some of the information required on a regular basis and this would constitute financial information.
One of the methods of collecting and storing financial information is the double entry method where for every amount of money transacted there will be a debit entry in one account and a credit entry in another account. All the accounts will either have a credit balance or a debit balance.
In order to ensure that the data recorded is correctly done and stored, accountants use a tool known as the trial balance. The trial balance will allow the accountant to prepare the information that can later be utilised for generating important financial statements such as the balance sheet and the profit and loss statement (also known as the income statement).
These two statements are considered to be the most important financial statements for a variety of people interested in any company or organisation. For instance, one could be an investor wanting to invest in the company. One could be a supplier wanting to supply goods and services. One could be a lender who has leant money to the company and wants to know if the company is doing well enough to repay the loan taken.