Keeping Your Business on Track, Part II
Home-Based Business Fact Sheet Bulletin #3003
by James C. McConnon, Jr., Extension business &
economics specialist and Forest M. French, Extension
What Are Financial Statements?
Financial statements usually include the balance
sheet, income statement (sometimes called a profit or
loss statement) and the cash flow statement. They
are prepared from business records at the end of
each accounting period, but they can also be done
on a monthly or quarterly basis. Annual accounting
periods usually represent a fiscal year or a tax year.
Financial statements may be either historical—
that is, from records kept over time—or they may
be pro forma, which include estimates of future
income and expenditures, net worth or cash flow.
Annual pro forma statements range from one to five
years and are usually required by financial
institutions as part of the operator's business plan.
What Will Annual Financial
Statements Do for Me?
Balance sheets show you the financial position of
your business in terms of assets, liabilities and net
worth at a specific point in time. Let’s define these
Assets are what the business owns. Examples of
assets include current assets such as cash,
inventory and accounts receivable, and fixed
assets such as land, buildings and equipment.
Liabilities are what the business owes its
creditors. They can be current liabilities, such as
accounts payable and current portions of
mortgage notes payable, or long-term debts
such as notes or bank loans payable.
Net worth is what the business owes its owners.
It is the difference between the total assets and
Balance sheets are usually prepared at the close
of your business year. A sample format of a balance
sheet is shown in Figure #1. Remember, balance
sheets should always be in balance—that is, total
assets equal total liabilities plus net worth.
Income statements reflect the annual operation of
your business in term