Whether you are an entrepreneur or just looking to give your personal finances an upgrade, knowing the basics of financial statements is a great place to begin. Financial statements are an inexpensive but effective way for you to manage your money and measure the financial health of a business or investment.
This article will go over the difference in financial statements, what they mean, and how you can use them to your advantage.
What Is a Financial Statement?
First, before we get into figuring out the differences between financial statements for personal or business accounts, it’s important that you know what exactly these statements are. A financial statement is essentially just a record of financial transactions or a breakdown of specific details about your money.
The Most Common Financial Statements
There are three main statements that you will see in any financial situation: income statement, balance sheet, and cash flow statement. Only two of these statements can be found personally (the income statement and cash flow), but since we are talking about the differences between business and personal accounts here, we’ll take a look at all three of these statements.
Income Statement
The income statement is also referred to as the profit-and-loss statement. This financial document shows you how much money an individual or business has made or lost over a specific time, whether weekly, monthly, quarterly or annually.
Balance Sheet
The balance sheet is also known as the statement of financial position or statement of financial condition. It will show you an individual’s assets (what you own), liabilities (what you owe), and net worth (assets minus liabilities).
Cash Flow Statement
The last and probably most important of the three financial statements is the cash flow statement. The cash flow statement shows you how much money is going in and out of an individual’s account. This statement can be used to determine your overall financial health.
By knowing the difference between these three statement types, you can easily understand and keep track of your money!