Pick Your Accounting Method

1. Cash Basis Accounting
   • Records income and expenses when cash is received or spent.
   • Ideal for small or non-retail businesses without inventory.
   • Uses bank statements to track cash flow.
2. Accrual Accounting
   • Records income and expenses when they are earned or incurred, regardless of cash flow.
   • Useful for service businesses and those needing a broader view of finances.
   • Tracks receivables and payables.

Financial Reports

• Key Questions:
  • Where does the money come from?
  • How is it spent?
  • What is owed and what is owed to you?
  • Current asset positions.
• Three Main Financial Reports:
  1. Balance Sheet: Shows assets, liabilities, and shareholders’ equity.
  2. Income Statement: Summarizes profits and losses over time.
  3. Cash Flow Statement: Details the cash coming in and going out.

Balance Sheet

• Assets: Listed by liquidity (cash first).
• Liabilities: Listed by due dates; short-term debts first.
• Shareholders’ Equity: Money invested in the company.
• Must balance: Assets = Liabilities + Shareholders’ Equity.

Income Statement

• Shows business profitability.

1. Revenue:
   • Operating Revenue: Sales and service fees.
   • Non-Operating Revenue: Interest, investments.
2. Expenses:
   • Primary Expenses: Cost of goods, admin, marketing, R&D.
   • Secondary Expenses: Interest on loans.
3. Net Income Calculation:
   • Revenue minus expenses.