FUNdamentals of Financial Statements: It's easier than you think

by Chinmay Ananda

In all these three kinds of businesses, there can be only four types of financial transactions. Money comes in Money goes out Money that is supposed to come in Money that is supposed to go out

All the money that is supposed to go out of the business within one financial year gets recorded under current liabilities, including payables, tax, short-term debts and so on.

Sales is called Top Lineand Profit is called Bottom Line.

Revisiting the balance sheet A Balance Sheet is a statement of Assets and Liabilities as at a particular date.

a Cash Flow Statement reflects the liquidity within the business.

Debit and Credit by itself has got no meaning. Only in the context of Double Entry System of Book-keeping in accounting they have a meaning.

The similarity between Expense and Assets is money goes out of the business. Conversely, the similarity between Income and Liabilities is money comes into the business.

you have to remember is when money goes out of the business it is Debited and if money comes in to the business it is Credited.