Title: Create a basic income statement and balance sheet.
Course: Make It Your Business (12151-18) > Section: Operating and Evaluating a Business

Creating a basic income statement should include

- recording revenue
- determining cost of sales
- recording expenses
- calculating net income or net loss.

The income statement subtracts the expenses incurred to generate revenue from the total revenue. The net result reflects the company’s profit or loss for the period.

Creating a basic balance sheet should include

- assets, including accounts receivable
- liabilities, including accounts payable
- owners’ equity.

The balance sheet lists a breakdown of current assets, current liabilities, and net worth on a specific date.

Profit and loss statements are valuable accounting tools and effective partial indicators of financial health. They can show how money comes into a company and how it is leaving through expenses of all kinds.

Process/Skill Questions

- Why are accurate financial records needed by a business?
- What are the potential consequences of not tracking expenses?
- What are the advantages and disadvantages of using software to track business records? What software packages are popular with businesses today?
- How can up-to-date and accurate records help the business plan for the future?
- How often should a business complete an income statement? A balance sheet?
- What are possible consequences of a business neglecting to generate an income statement?
- What is the difference between an asset and a liability?
- How should a company track business assets?