You are starting to build your own business empire here in Singapore and the first thing that you have to learn is accounting. Accounting is instrumental in any organization as it can determine the company’s financial stability. It is crucial that you know basic principles governing accounting so you won’t be easily fooled or blinded.
As you enter into different transactions, things need to be counted and categorized properly. This is critical as it can give you a clear picture of what changes in your financial position. Want to know more? You should begin to understand the nature of financial statements. Financial statement refers to the categorized transactions that occurred at a given time. There are three types of financial statements to include:
- Income Statement
Income statement has two categories – income and expenses. Now this may sound easy but you have to learn to at least identify whether a thing is income or an expense. Income means sales – this is an outcome of the service or product that you sold. Expense means purchases (goods or services that you received from other businesses), employees (hiring people to work for you) and depreciation (like machinery and building)
- Balance Sheet
Balance sheet usually refers to the list or collection of everything from your assets to your liabilities at a given point in time. These are from your past transactions. Speaking of assets, it includes fixed assets, VAT, inventory, Trade receivables and cash. Fixed assets for example describe the net value of outstanding goods that are used for numerous periods. Cash refers to the money you have on hand or in the bank. Liabilities are classified as debt, equity, provisions and trade payables. Debt for example describes how much you owe to your bank.
- Cash Flow Statement
When you hear cash flow, it usually refers to the change in cash from one period to the next. Cash flow statement has parts that include operating cash flow, investing cash flow and financing cash flow. Operating cash flow is linked to your running business. Investing cash flow on the other hand describes the cash you invested. Lastly, financing cash flow elucidates the cash received and paid from investors and equity.
Learning basics of accounting can be the difference between failure and success. Give time for this and it can surely make your future brighter than ever. Know it by heart. Always remember that the three financial statements are interrelated so do not ignore one.