How to avoid financial losses in your business

Profit is what we aim in doing business. By achieving it, we can gain financial power that we can use to stabilize our way of living including those of our family, friends and community. It is a joy for every businessman to have a net profit in their statements of income. On the other hand, a net loss at the bottom of those statements may make them frown. Financial losses may occur whether your business is big or a small one. But no matter how big or how small you have, you should do something to avoid those negative results in your operations. Income and losses are the possible results in your income statement. Hence to attract income and get rid of losses, we should know how to play with the nominal accounts – revenues and expenses. The following are the tips and ways on how to stay away from those losses. Read more

Definitions and sources of owner’s, partners’ and stockholders’ equity:

Ownership equity is the residual interest in the assets of the entity after deducting all its liabilities. In the accounting equation as presented in the balance sheet, equity equals assets minus liabilities. This means that ownership equity is composed of all the entity’s resources which are not obtained from debts. In other words, it consists of all the resources derived from owners’ contribution.

Equity differs depending on the structure of an entity. A sole proprietorship which is owned solely by a proprietor presents its equity as an owner’s equity. Accounting for owner’s equity in a single proprietorship is simple. Owner’s equity in this form is increased when the owner contributes capital or realizes net profit. It is then decreased when the owner draws capital or incurred a net loss. Read more

Knowing and understanding what is Statement of Changes in Equity

A statement of changes in equity shows all changes in owner’s equity for a period of time. According to IAS 1, this statement of financial reporting is one the five components of complete financial statements (balance sheet, income statement, statement of changes in equity, statement of cash flow and notes to financial statements.

IAS 1 requires an entity to present a statement of changes in equity as a separate component of the financial statements. The statement must show: [IAS 1.96]

(a) profit or loss for the period;

(b) each item of income and expense for the period that is recognised directly in equity, and the total of those items; Read more

Reading your statement of income or profit and loss statement

Among the four basic components of financial statements (the balance sheet, statement of changes in equity, income statement and cash flow statement), the statement of income is the most interesting and exciting to read by its common users. This is true, since it indicates if an entity is having a profit or a loss, and that every business owners, investors, creditors and even the tax authorities may primarily want to see and know first if an entity is earning or making money out of running its business and utilizing its resources.

An income statement also called profit and loss statement (P&L) or sometimes prepared as statement of operation, is a formal statement showing the performance of an entity for a given period of time. The performance of the entity is primarily measured in terms of the level of income earned by the entity through the effective and efficient utilization of its resources. Income statement indicates how revenue (money received or receivable earned from the sale of products and services before costs and expenses are taken out) is transformed into net income or net profit (the result after all revenues, costs and expenses have been accounted for). This income performance is used to be known as the results of operations of the entity. Read more