Some basics:
Does your balance sheets tell you…
…how many popsicles you sold? No.
…how much cash you received? No.
…how much it cost you to make the popsicles you sold? No.
…how much you spent on expenses besides debt repayment? No.
This is where the income statement comes in.
Does your income statement tell you…
…how much money you have in the bank? No.
…how much money you owe (eg. in rent)? No.
…how much money is in the business, in the form of Equity? No.
…how much money you had one month ago, six months ago, or a year ago? No.
This is where the balance sheet comes in
The balance sheet formula
To grasp how the three categories on the balance sheet work together, remember this formula:
Assets = Liabilities + Equity
Take on more financial obligations (liabilities), and your assets decrease. Store up more money (equity), and your assets increase.
The income statement
While the balance sheet is a snapshot of your whole business, the income statement just focuses on your money. How much are you making (revenue)? How much are you spending (expenses)?
Balance Sheet
Income Statement
