You only really need to know three financial statements: The Income Statement, The Cash Flow Statement, and The Statement of Net Worth. These are fundamentally the same statements whether you are analyzing an individual person, a non-profit, or a big company.
Each statement provides a different way to look at things. Taken together, they tell a well-rounded financial story. Sometimes, one statement might be more important to you than the others. Say you have a cash flow crunch...well, then guess which statement is the one you’d want to construct or refer to? That’s right! The Cash Flow Statement! Damn, you’re good. Then, if another time, you find you’re swimming in debt...the statement you’ll want to review is the Statement of Net Worth (okay, so the statement names don’t really have to use upper case, like a proper noun. But it does make them look super important, doesn’t it?).
The Income Statement - Sometimes called an income and expense worksheet, this shows you how money flows in and out of your life. Income comes in, expenses flow out. The difference between total income and total expenses clarifies whether they are making or losing money. A corporation or small business would use the same basic format for their own income statement, but their line items would be different, of course. The sample Income Statement on the following page is done on a monthly time frame, but these can be constructed with a different period, like annually or quarterly. Look at this sample.
The Cash Flow Statement - This statement helps you figure out whether enough cash is coming in, where cash is going, and whether there is enough to cover expenses during a certain period. If someone is in dire financial straits, they’d want to construct this statement on a week to week, or month to month basis. Look at this sample.
The Statement of Net Worth - This shows a snapshot in time of someone’s financial value. Now, of course someone’s value can be judged on a whole lot of different criteria (how are they as an artist, friend, parent, lover, athlete, and so on). This statement only judges the one dimension of money. It’s important but not everything. Okay? Look at this sample.
NOTE: If the links don't work, go to my website www.peaceloveandfinancialplanning.org and click on Tools You Can Use.