Welcome to Module 3! Now that you’re comfortable with journals and ledgers, let’s dive into the world of financial statements.

Lesson 1: Introduction to Financial Statements

1.1 Purpose of Financial Statements:

Financial statements are the heartbeat of any business. They tell the story of your financial health, helping you make informed decisions and presenting your business’s performance to the world.

1.2 Components of Financial Statements:

Income Statement (Profit and Loss): Your business’s financial performance over a specific period.

Balance Sheet: A snapshot of your business’s financial position at a given moment.

Cash Flow Statement: How changes in balance sheet accounts affect cash.

Lesson 2: Income Statement (Profit and Loss Statement)

2.1 Anatomy of an Income Statement:

Revenue: Money generated from primary business activities.

Expenses: Costs incurred to earn revenue.

Gross Profit: Revenue minus the cost of goods sold.

Net Profit: Revenue minus all expenses.

2.2 Understanding Profit:

Gross Profit Margin: Percentage of revenue that exceeds the cost of goods sold.

Net Profit Margin: Percentage of revenue that remains after all expenses.

Lesson 3: Balance Sheet

3.1 Components of a Balance Sheet:

Assets: What your business owns.

Liabilities: What your business owes.

Equity: Residual interest in the assets after deducting liabilities.

3.2 The Accounting Equation:

Assets = Liabilities + Equity

Lesson 4: Cash Flow Statement

4.1 Importance of Cash Flow:

Profit doesn’t always mean cash in hand. The cash flow statement ensures you know when and where your cash is moving.

Conclusion:

You’re now equipped to assemble your financial statements. Module 4 will guide you through interpreting these statements for insightful decision-making.