C. Financing a Small
Business
5.00 Explain the financial statements
maintained in a small business.
5.01 Develop the financial
records used in a small business.
XYZ Balance Sheet
March 31, ____
Assets
Cash
$10,745
Accounts receivable
868
Inventory
5,799
Supplies
433
Total Assets
$17,845
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Liabilities
Accounts Payable
Notes Payable
$3,444
5,705
Total Liabilities
$ 9,149
Net Worth
Robin Smith
Total Liabilities & Net Worth
8,696
$17,845
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Balance Sheet:
• A financial statement that shows what a
business owns, what it owes, and how
much it is worth at a particular point in
time.
• Components include:
Assets
Liabilities
Net worth
Assets: Items of value owned
by a business.
Types of Assets:
Current Assets: Easily converted into cash
Fixed Assets: Not easily converted into
cash
Intangible Assets: Can not be seen or
touched
Other Assets: Value of life insurance policy
or retirement savings
Liabilities: The amount owed
to others.
Types of Liabilities:
Current: Financial obligations that will be
repaid within one year.
(Accounts payable, notes payable for small
loan, salaries payable, income taxes
payable)
Long-term: Financial obligations that will
take the business more than one year to
repay.
(Mortgage, notes payable for large loan)
Net Worth: The monetary
amount a business owns.
Net worth is calculated by
subtracting a business’
liabilities from assets.
Assets – Liabilities = Net
Worth
XYZ Income Statement
Year Ended December 31, ____
Revenue
Net Sales
$450,000
Cost of goods sold
250,000
Gross Profit on Sales
$200,000
Operating Expenses:
Salaries
$70,000
Advertising
12,000
Rent
14,000
Utilities
3,600
Maintenance
1,200
Insurance
1,500
Miscellaneous
1,000
Total Expenses
Net Income (before taxes)
103,300
$96,700
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Income Statement:
• A financial statement that shows how much a
business has earned or lost during a year.
• Components include:
 Gross sales
 Net sales
 Cost of goods sold
 Gross profit on sales
 Expenses
 Net income
 Taxes
Gross sales: The dollar
amount of all sales, usually
within a one-year period.
Net sales: Gross sales minus
returned goods.
Cost of goods sold: The dollar
amount a company pays to
purchase a product for resale.
Gross profit on sales: Net
sales minus the cost of goods
sold.
Expenses: All costs
associated with running a
business except for the cost of
goods sold.
Includes:
Variable expenses: Business expenses
that change month-to-month.
Fixed expenses: Business expenses that
do not change month-to-month.
Net Income: The amount of
money left after all costs and
expenses have been deducted.
Net income is calculated by subtracting total
expenses from gross profit.
This can result in a net profit or loss.
Gross Profit – Total Expenses = Net Income
Taxes: Federal, state, and
local taxes that are owed to
the government.
The tax due is calculated on the net income
which represents the true profit of the
business. Taxes are not considered an
operating expense and are subtracted below
net income on the income statement.
Cash Flow Statement:
• A cash flow statement is a monthly
financial report for internal use that
describes the flow of money into and
out of the business.
• Components include:
Cash receipts
Cash disbursements
Net cash flow