Josh Aharonoff, CPA
Josh Aharonoff, CPA is an Influencer
Fractional CFO | 300k+ Finance & Accounting Audience | Founder & CEO of Mighty Digits
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Understand Financial Statements and how they are connectedWhether you work in Finance & Accounting…are running a business…or want to be a well rounded person.Understanding financial statements will add huge value.If you are still struggling…this infographic has got you covered.Let’s do a deep dive:➡️ THE BALANCE SHEETThis statement tells you the most information about a business.The concept is really simple…What you OWN (assets)Was funded by amounts owed to CREDITORS (liabilities)and Owners (owners equity)and your owners equity has a special account called Retained Earnings.That account is actually just a summarized balance of the details behind your Profit & loss…➡️ THE PROFIT & LOSSThis statement is designed to tell you one thing:how profitable your business is each periodIt’s separated by:Revenue → IE your incomeCost of Goods Sold → the cost to deliver your salesOperating Expenses → the cost to operate your businessOther Income / Expense → income and expense accounts not related to your core businessIncome taxes → the taxes you pay on the businesses profitsAnd then you can understand the profitability of your business with 4 metrics found here:Gross Profit → Revenue - COGSNet Operating Income → Gross Profit - OpexNet Other Income → Other Income - Other ExpensesNet Income (before or after tax) → all income accounts, less all expense accounts.Net income flows through into your Balance Sheet under retained earnings➡️ THE STATEMENT OF CASH FLOWSThis statement is designed to tell you one thing:where your cash is goingNo…cash is NOT the same as profits.You can be insanely profitable, but have a slow collections cycle, leading to cash constraints.The Statement of Cash flows is separated by 3 sections:Cash from Operating Activities → This shows you the cash movements from operating your business…starting with your net income…adding back your depreciation & amortization…and factoring items such as cash collected from customers, cash paid to suppliers, and cash paid to employeesCash from Investing Activities → This shows you the cash movements from the long term assets that you invest in…IE fixed assets (equipment, machinery, land)intangible assets (patents, copyrights, domains)and long term investments (bonds)Cash from Financing Activities → This shows you the cash movements from items related to financing your business…IE you raise capital from investors…or repay a loan➡️ PUTTING IT ALL TOGETHERAs you can see…the Balance Sheet is the one true statement of the business…the other statements just provide extra detail not found on your Balance SheetThe Income Statement PUSHES net income to the Balance sheet via Retained EarningsThe Statement of Cash Flows PULLS from the balance sheet for all accounts other than cash, to back into where your cash is goingDo you have anything to add?Let us know by joining in on the discussion in the comments below 👇
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Alina Barcikowska
President of the Board, Visionary, One of the Founders at TAT Audit Sp. z o.o. currently on my (not easy) dream job ;-)
5mo
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strange :-)
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Hameed Yakoob teaches Accounting (Online)
Corporate(Online)Training, Accounting (Online) Training
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Why do Profits & Cashflows differ?There are TWO reasons:(1) Investment in fixed assets is NOT deducted immediately from income but is instead spread over the expected life of the equipment.(2) The accountant records revenues when the sale is made RATHER than when the customer actually pays the bill and at the same time deducts the production costs even though those costs may have been incurred earlier.
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Damon Paull, AWMA®
Financial Advisor for Business Owners, Entrepreneurs, & Individuals | 401(k), Profit-Sharing, Health, Legal & Accounting solutions for Benefit Plans | Military, Veteran & Nonprofit Advocate
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This is an excellent breakdown of financial statements! The balance sheet, profit & loss statement, and statement of cash flows are all interconnected and provide a comprehensive view of a business's financial position. Understanding these statements can help make informed decisions and drive success for business owners - Great post Josh Aharonoff, CPA Have a good weekend!
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Matthijs Pool
CFO / Owner at Irixs B.V.
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Just one thing to add. The balancesheet tells you something AT a certain date. The profit and loss account tells you something ABOUT a certain period (as is with the cashflow statement).
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Aleksandar Stojanović, MSc.
Scaling SaaS Startups & SMB’s with ARR $1M-$50M | $300K+ in Client Savings | Keynote Speaker | Fractional CFO | Advisor | I will earn you back 6-12 months of my pay | In the first 6-12 weeks I work with you
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Josh, awesome breakdown! One key point to emphasize is the importance of these financial statements not just for internal decision-making but also for external stakeholders. Investors, creditors, and even potential partners assess a company's health and trajectory using these statements.
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Marie Speakman 🤖
AI consultant helping accountants and their clients save time, increase profits and maximise potential within their business with AI solutions.
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A great way of showing the connection Josh Aharonoff, CPA more and more with AI driven tools we can have all this information in a format that works well for us.
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Gamal Jastram
Fractional CFO | Finance Manager | Business Intelligence | Data Analyst | Aspiring Software Engineer/Developer
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The most powerful document in existence for a company Josh Aharonoff, CPA
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Melanie Price
Head of School, Green School Belize
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Gratitude
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🥧 Thomas Lewin
I help you help your employees help you. 😎Growth, Succession, Employee Retention. ✅How? Employee Share Ownership Plans (ESOPs)Experience your employees thinking & acting like owners. 🤝
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Josh, love this one!
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Roy Rajdhar
Independent Consultant
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This indirect method of doing a cash flow is not a preferred method. Why not do things simple such as:Cash received from customersCash received from loansCash received from shareholdersCash received from sale of assetsEtcTOTAL CASH RECEIVEDThen do same for all CASH PAID OUTThen add the opening balance of Cash in the bank and arrive at Cash in bank at end of period.Everyone understands that not only accountants.
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Mohamed Zamzam
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a quick useful summary for f.s
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Emmis Bwalya
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make finance and accounting easy
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Understanding of Financial statements Venn Diagram
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Dan Wells
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Here’s a helpful summary of financial statements from Josh Aharonoff
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Mike’s F9 Finance
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Finance and accounting are interconnected.And financial statements are key to both professions.Check out this fantastic guide from Josh Aharonoff, CPA on the relationship between the three financial statements.#corporatefinance
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Josh Aharonoff, CPA
Josh Aharonoff, CPA is an Influencer
Fractional CFO | 300k+ Finance & Accounting Audience | Founder & CEO of Mighty Digits
- Report this post
Understand Financial Statements and how they are connectedWhether you work in Finance & Accounting…are running a business…or just be a well rounded person.Understanding financial statements will add tremendous value to our life.and if you are still struggling…I've got you coveredLet’s do a deep dive:➡️ THE BALANCE SHEETThis statement tells you the most information about a business.The concept is really simple…What you OWN (assets)Was funded by amounts owed to CREDITORS (liabilities)and Owners (owners equity)and your owners equity has a special account called Retained Earnings.That account is actually just a summarized balance of the details behind your Profit & loss…➡️ THE PROFIT & LOSSThis statement is designed to tell you one thing:how PROFITABLE your business is each periodIt’s separated by:Revenue → IE your incomeCost of Goods Sold → the cost to deliver your salesOperating Expenses → the cost to operate your businessOther Income / Expense → income and expense accounts not related to your core businessIncome taxes → the taxes you pay on the businesses profitsAnd then you can understand the profitability of your business with 4 metrics found on this statement…Gross Profit → Revenue - COGSNet Operating Income → Gross Profit - OpexNet Other Income → Other Income - Other ExpensesNet Income (before or after tax) → all income accounts, less all expense accounts.This Net income account flows through into your Balance Sheet under Retained Earnings➡️ THE STATEMENT OF CASH FLOWSThis statement is designed to tell you one thing:where your cash is goingNo…cash is NOT the same as profits.You can be insanely profitable, but have a slow collections cycle, leading to cash constraints.The Statement of Cash flows is separated by 3 sections:Cash from Operating Activities → This shows you the cash movements from operating your business…starting with your net income…adding back your depreciation & amortization…and factoring items such as cash collected from customers, cash paid to suppliers etc.Cash from Investing Activities → This shows you the cash movements from the long term assets that you invest in…IE fixed assets (equipment, machinery, land)intangible assets (patents, copyrights, domains)and long term investments (bonds)Cash from Financing Activities → This shows you the cash movements from items related to financing your business…IE you raise capital from investors…or repay a loan➡️ PUTTING IT ALL TOGETHERAs you can see…the Balance Sheet is the one true statement of the business…the other statements just provide extra detail not found on your Balance SheetThe Income Statement PUSHES net income to the Balance sheet via Retained EarningsThe Statement of Cash Flows PULLS from the balance sheet for all accounts other than cash, to back into where your cash is goingDo you have anything to add?Let us know by joining in on the discussion in the comments below 👇
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Krystan Smith
Controller/Coffeyville Regional Medical Center
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This is great info for any business who is wanting to learn more about financials.
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Dimitrios Diamantaras
Division Supervisor, Master's Degree at Lancaster University
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This work, Full Circle Financial Statements, by Josh Aharonoff, CPA in my opinion sheds light to a frequently overlooked topic in Finance and Accounting. It covers, inter alia, clear descriptions, items included in each statement, relevant clarifications, a useful tool. What is your view ?
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Kathleen Cabral
QuickBooks Online | Bookkeeper | Accounting & Finance | Customer Experience
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Understand Financial Statements and how they are connected ✨
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