If you’re not a bookkeeper you’re probably thinking you can skip this post. Think again. If you own your own business this is a super important post for you to read. In fact, if you’re a bookkeeper or accountant you’ll probably be bored reading this. If you don’t have a bookkeeping or accounting background you probably think you don’t need to know anything about accounting. Wrong. If you are a business owner it’s super important that you have at the very least a basic knowledge of accounting. So, let’s get a basic knowledge of your financial statements.

First, a brief disclaimer: reading this isn’t going to make you an expert on financial statement. It is going to give you a basic knowledge of financial statements for your own business use.

So, there are two main financial statements: the Income Statement and the Balance Sheet. Many people think the Income Statement is the most important financial statement, that’s not exactly the case…the Balance Sheet is pretty important. In fact, the Income Statement is summarized on your Balance Sheet.

Income Statement

You may also hear the Income Statement referred to as a Profit & Loss Statement. Really they are the same thing. I know, confusing, but it’s the way it is.

The Income Statement is broken in to two parts (sometimes three…but don’t worry I’ll get to that) the income section and the expense section. Then we have what some consider the most important part: your net profit (or if you’re unfortunate loss). Your net profit is simply your income minus your expenses.

Income is all the money you bring in and expenses are everything you pay out. Clear as mud, right?

Then we have that third section I mentioned. Here’s where it can get a little confusing. Occasionally you’ll see a section called Cost of Goods Sold. This section is used by some companies to break out specific income related costs. For example: a painting contractor would have painting payroll, payroll taxes, paint, and equipment rental that would be directly related to the cost of earning his income. That would go to the Cost of Goods Sold section. In the expense section expenses that are related to the overall cost of running the business would go. For example: office rent, accounting fees, and office supplies would go in the expense section.

Balance Sheet

The Balance Sheet tends to be a little more confusing to a lot of people. Really it, isn’t. The Balance Sheet consists of three sections: assets, liabilities, and equity. A Balance Sheet must balance. To do that the Assets must equal Liabilities plus Equity. Trust me, it works.

So, what is an asset? Assets are those things that the company owns: bank accounts, accounts receivable, loans people owe your company, furniture and other property.

Liabilities are those things the company owes: loans from others, accounts payable, sales taxes owed (on your sales), and other debt.

Simply put equity is assets minus liability. Within the Equity section you’ll see two other items: Retained Earnings and Net Income. Retained earnings is the sum of all prior years net incomes. Net Income is the current year’s net income (from the Income Statement — see I told you the Income Statement was summarized on the Balance Sheet).

Now for my bookkeeper soap box. Many business owners ignore the balance sheet and assume it’s not important. Many times mistakes happen on your balance sheet that could negatively affect your business. I HIGHLY recommend watching your balance sheet and keeping each of it’s accounts checked.

So, there you have it, a very basic lesson on financial statements.

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It’s hard for me to believe but August marks the 6th anniversary of Taylored Office Solutions. We’ve come a long way in six years!

Six years ago I was bumbling around trying to figure out how I could do all this on my own. Today I have client’s that rely on me for my bookkeeping expertise and ask me for advice for their own businesses. I still have a hard time sometimes accepting that I’m a success.

Six years ago I had one small client that asked me to clean up a huge mess his prior two bookkeepers made. Today I’ve helped that same client walk through some major business changes. I have the privilege of leading other virtual bookkeepers as they start their own businesses. People ask me for advice on how they can do what I do. Who would have known six years ago that this crazy girl who needed a few extra bucks would build a company that would be so successful.

Here’s to our future!

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Working at home is great in so many ways, but I do get a little lonely now and then. Sometimes I miss the camaraderie that’s part of a brick-and-mortar job. But since joining Twitter, I feel like I have a bunch of friends around all day! I’m having a great time with this social networking site, and want to recommend it to all of you at-home workers, if you’re not already signed up.

Updates to Twitter (which are called “Tweets”) are limited to 140 characters, so any messages you send take only a few seconds to write. I check in to the site regularly throughout my work day, but really only spend a total of 20 minutes there, so I don’t feel like I’m wasting time. On the contrary, these brief visits boost my mood and keep me in close touch with people I care about.

When you don’t have the distractions of the business world around you, you can drive yourself pretty crazy with work. Since there’s nothing to interrupt your concentration, you can find yourself working like a dog, and not enjoying it that much.

It’s important to take a break now and then, to look up from your work and refresh your mind. Twitter is a great way to do that! Just log in, see what your friends are up to right now, take a few seconds to write your current update, and then return to your labor with new energy!

One rewarding way I use Twitter is by using the search feature to find people I’d like to get to know better. If I meet someone on an online networking forum or newsgroup, I can follow them on Twitter and learn new things about them and their ways of working and living. It’s a rich source of tips, ideas, and encouragement and it’s constantly available.

And then, of course, it’s a terrific way to keep up with what your friends are doing. I love being able to stay in contact even though we are busy with our separate lives. Just a word or two from someone you care about can make all the difference to your outlook.

If you’d like to have just a little company as you work at home, check out Twitter! But, be sure to follow me.

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