Business is a game of highs and lows. There are a lot of actors which comes into play during its operation. One of the most important criteria over which the business profits depend is “Experienced Bookkeeper”. The bookkeeper should have an unquestionable grip over accounting. Other major criteria are that they should be trustworthy. After all, they are the ones who ensure that the business transactions are recorded in a proper and timely manner. Financial transparency is very important. Without it, people will be playing a catch-up game with balances and thereby not be able to take proper and wise business decisions
Many people have the idea that by having a detailed look over the income statement of the company they are able to grasp the profitability of the company. A lot of CEO’s do so. But the income statement alone does not provide the whole picture. The income statement tells the ultimate result of the whole play without the necessary details.
However, the good financial managers do not do so. They will look at both the pares available, which includes the income statement as well as the balance sheet. Each and every accountant are aware of the fact that in order to have an accurate income statement, one needs an accurate balance sheet. If all the expenses are not recorded properly the two reports would not match up and will hence be incorrect.
People have the generalized notion that an income statement and a balance sheet tends to offer the same details. However, this is not the entire truth. They do give insights into the companies finances, but they have their own set of variables.
A Balance Sheet is a snapshot of the time where a particular expense occurred whereas the incomes statement is the overall video comprising of the income over a particular span of time. Balance Sheet consists of a lot of things, which can be primarily categorized as assets and liabilities.
How does both work
It is very important to know how both the sheet work together and are related to each other. Consider a small case. Consider that certain individual employees of the company doing field work are given an iPad for increasing efficiency. But it is important to know that the money the company spent on purchasing the iPad is an asset or expense. Here it is an asset as it can be used in the long run. Thus it is added to the list of assets. By recording it as an asset one will be able to show higher profits at a lesser expense.
There are a lot of times when the company seems to be making a profit but is devoid of any cash. The answer to this situation can find out in the balance sheets. The profits were listed in the income statement but only after going through the balance sheet will one see the expenses incurred. People will also get the answer to the questions about where the cash went. Thus it is extremely important to maintain an accurate balance sheet as well as an income statement. This will prove the officials with the entire picture of the company. Thus the CEO will be able to make a much better decision with respect to the current situation of the company and the pas experiences incurred.