The Importance of Understanding Your Company’s Income Statements and Balance Sheets

Regardless of industry, your income statements and balance sheets hold the keys to your company’s overall financial outlook. By understanding these versatile documents,
business leaders are in the best possible position to make profit-enhancing decisions. At
the same time, decision-makers who overlook their financials are liable to either repeat
the same mistakes or misallocate their resources. Based in Silicon Beach, our No Stress
Accounting team walks through the fundamental reasons why business leaders must
understand their financial documents.
Income Statements vs. Balance Sheets
Before diving in, let’s explore the differences between these key documents. While a
balance sheet highlights an organization’s assets and liabilities (i.e. what a business
owns versus what it owes), an income statement provides historical revenue and
expense information.
For example, your balance sheet would include your inventory and long-term assets
such as property while your income statement would show your revenue from specific
sales as well as your profit or loss.
Why Your Income Statement Matters
Your income statement is more than just facts and figures. Each number tells a story. By
understanding the meaning behind the data and regularly checking your income
statements on a monthly, quarterly, and annual basis, you can:
• Analyze the financial impact of your decisions
• Indicate your financial health to investors
• Streamline the tax filing process
• Track long-term trends to forecast financial hurdles
• And more
 
The Benefits Behind Your Balance Sheet

While your income statement provides key data over specific time periods, your balance
sheet offers a comprehensive look at your company’s overall financial health. By keeping
your balance sheet up-to-date, you can:
• Determine your spare liquidity to pay for ongoing and future liabilities
• Keep track of the value held in physical assets
• Prove your creditworthiness for loan approvals
• Determine if your cash flow is sufficient to maintain day-to-day operations
• And more
Closing Remarks
Today, income statements and balance sheets are commonly confused among small
business owners and SME decision-makers. As a result, understanding the differences
and benefits of each document can confer a major competitive advantage.
Our No Stress Accounting team is committed to supporting a healthy financial picture for
our clients. In turn, we offer subscription-based bookkeeping services that help you make
more strategic choices. To learn more, visit us at nostressaccounting.com. We look
forward to transforming your data into decision-making aids.