Key Elements Of A Good Financial Statement

A financial statement is a document that shows a business’s overall financial status. It contains the revenue the business earns over a specific period and the expenses and costs associated with making those sales. The net income shown on the statement is left over after expenses and taxes are deducted. You need to understand that your revenue should be greater than your expenses. Read on to learn about the key elements of a good financial statement in Canada.

Revenue

Revenues are one of the four main components of income statements. Revenue is the top line in a company’s financial statements, representing the amount of money the company generates over a given period. Revenue is further subdivided into operating and non-operating revenue. Operating revenue is the money a company generates from its core business operations. In contrast, non-operating revenue refers to revenue that is generated from non-core sources, such as investments.

Expenses

Expenses are costs that a business incurs to conduct its operations. These costs can include salaries for administrative staff, costs for researching new products, and marketing expenses. However, these costs differ from revenue costs directly linked to producing goods or services.

Expenses are generated during major operations, such as production, marketing, and sales. They include costs incurred for advertising, including print, radio, and video ads. Expenses can also include debt interest and depreciation. For small businesses, expenses may rise as they grow, and they need to pay for hiring workers, supplies, and marketing.

Liabilities

A good financial statement includes information about the company’s liabilities and assets. Liabilities are money the company owes to its creditors. Tracking liabilities helps a business understand costs and plan to spend. These elements also help a business identify risks. One type of liability is deferred revenue, which is money the company owes to suppliers who have made a trade credit arrangement with the business.

Cash flow

Cash flow measures the company’s money to meet short-term obligations. It includes the cash generated by operations, such as revenue and expenses. It is an important complement to the balance sheet and income statement. Positive cash flow indicates that a company has a good capacity to meet its liabilities.

Non-operating items

The non-operating items in a company’s financial statements show which income comes from sources other than the core business. These items can affect a company’s profitability and skew its earnings report. Nonetheless, if they’re shown separately, they can help gauge the stability of a company.