Financial Literacy-The Purpose of Financial Statements

Mar 24, 2017 by Andrew Clark

Most veterinary businesses can operate very effectively using three financial statements;

  1. the income statement (also called the profit and loss statement)
  2. the cash flow statement
  3. the balance sheet 

The purpose of the income statement is to show whether the company made or lost cash, and how much cash, by selling veterinary services and products during the period being reported.

The purpose of the cash flow statement is to show what was done with the cash generated by the veterinary business as well sources and uses of cash generated from non cash assets

The purpose of the balance sheet is to show, on a specific date/time, what the veterinary business has to show for all of its efforts.   The balance sheet reports liabilities (debt)  and two types of assets, cash and non cash. 

Once you understand these three financial statements, you know the following things:

  • INCOME STATEMENT/P&L- during a period of time
    • how much cash was generated or lost by your veterinary company
  • CASH FLOW STATEMENT- during a period of time
    • how the cash was used during a period of time
    • how non cash assets became sources or uses of cash during a period of time
  • BALANCE SHEET- on a specific date/time
    • what assets you have to show for the activities of the veterinary business
    • what liabilities you have to show for the activities of the veterinary business

That is a lot of information you can understand with a modest investment in increasing your financial literacy. 

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