{"id":1675,"date":"2022-12-28T08:30:16","date_gmt":"2022-12-28T13:30:16","guid":{"rendered":"http:\/\/www.heywardcpa.com\/blog\/2022\/12\/28\/episode-11-financial-statements-decoded-income-statement\/"},"modified":"2025-07-15T15:21:40","modified_gmt":"2025-07-15T19:21:40","slug":"episode-11-financial-statements-decoded-income-statement","status":"publish","type":"post","link":"https:\/\/www.heywardcpa.com\/blog\/2022\/12\/28\/episode-11-financial-statements-decoded-income-statement\/","title":{"rendered":"Episode 11-Financial Statements Decoded: The Income Statement"},"content":{"rendered":"<figure class=\"video strchf-type-video regular strchf-size-regular strchf-align-center\">\n<div class=\"embed-container\">\n<div style=\"max-width: 100%; position: relative; padding-top: 56.5%;\"><iframe loading=\"lazy\" width=\"200\" height=\"113\" src=\"https:\/\/www.youtube.com\/embed\/4uCIdVylCGU?feature=oembed&amp;t=1497s\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture\" allowfullscreen=\"\" title=\"Episode 11-Financial Statements Decoded: Income Statement\" style=\"position: absolute; top: 0px; left: 0px; width: 100%; height: 100%;\"><\/iframe><\/div>\n<\/div>\n<\/figure>\n<p>When you first <a href=\"https:\/\/blackaccountant.net\/the-3-stages-of-a-business-what-stage-are-you-in\/\">begin your business,<\/a> it can be challenging to know where to begin. There are so many different things you need to think about, analyze, and understand that it\u2019s easy to get lost in the details. However, one of the most important aspects of creating a successful business is understanding your balance sheet and your cash flow statement. These two documents will give you insight into how well you\u2019re able to manage your company from a financial standpoint. That\u2019s why we\u2019ve put together this quick guide on how to read your income statement and how to understand your balance sheet and cash flow statement for a business. Understanding these three documents will help you understand what kind of impact operating <a href=\"https:\/\/blackaccountant.net\/episode-7-how-to-define-a-business-expense\/\">expenses,<\/a> fixed assets, equity financing, depreciation, and working capital has on your company as a whole.<\/p>\n<h2 id=\"718pc\"><strong>What is financial analysis?<\/strong><\/h2>\n<p>Financial analysis is when you look at the financial aspects of a business to determine how the business is doing financially. There are a few key indicators you should look at to gauge how healthy a business is. Some of these include the company\u2019s balance sheet, cash flow statement, and\/or equity financing ratio. These financial indicators can also be used to forecast what the future financial health of a business may look like. However, it\u2019s important to note that no financial analysis will be 100% accurate. In fact, a business can be doing great financially and still be on the verge of closing its doors because of a change in its industry.<\/p>\n<h2 id=\"402jt\"><strong>Why do a financial analysis?<\/strong><\/h2>\n<p>Financial analysis is one of the best ways to understand how your business is performing financially. You can use your financial analysis to forecast what your future financial health might look like. There are a few key components that you should look at when conducting a financial analysis. First, you want to take a look at your balance sheet. This document will show you an overview of your assets and liabilities. Next, you want to take a look at your cash flow statement. This will show you how much cash is flowing into and out of your company. Finally, you want to look at your equity financing ratio. This will show you how much equity financing you have compared to your total assets.<\/p>\n<figure class=\"image strchf-type-image regular strchf-size-regular strchf-align-center\"><picture><source srcset=\"https:\/\/images.storychief.com\/account_4563\/image_9bc5219874f4442946fdc734035485be_800.png 1x\" media=\"(max-width: 768px)\" \/><source srcset=\"https:\/\/images.storychief.com\/account_4563\/image_9bc5219874f4442946fdc734035485be_800.png 1x\" media=\"(min-width: 769px)\" \/><img decoding=\"async\" src=\"https:\/\/images.storychief.com\/account_4563\/image_9bc5219874f4442946fdc734035485be_800.png\" \/><\/picture><\/figure>\n<h2 id=\"s8u9\"><strong>When should you do a financial analysis?<\/strong><\/h2>\n<p>You should do a financial analysis on a regular basis as a way to stay on top of your company\u2019s financial standing. While you don\u2019t necessarily have to do a financial analysis every month, you should do one every quarter at a minimum. Doing a financial analysis on a regular basis will allow you to keep an eye on your company\u2019s financial health. If you notice that your company\u2019s assets are decreasing while liabilities are increasing, you may want to look into why this is happening. Doing a financial analysis on a regular basis can help you find any financial issues that you may be having before they get out of hand and have a negative impact on your company.<\/p>\n<h2 id=\"fh52t\"><strong>Balance Sheet Decoded<\/strong><\/h2>\n<p>The balance sheet is one of the most important documents you will create as a business owner. This document can help you to understand your overall financial standing, as well as provide insight into your company\u2019s assets (what you own), liabilities (what you owe), and equity (your investment in the company). On top of that, the balance sheet can also help you forecast your company\u2019s future. The balance sheet will break down your company\u2019s assets into two categories: current assets and fixed assets. Current assets are assets that can be converted to cash within one year. These assets include cash, inventory, accounts receivable, and short-term investments. Fixed assets are assets that are used to generate revenue but can\u2019t be converted to cash within one year. These assets include long-term investments and property. The balance sheet will also break down liabilities into two categories: current liabilities and long-term liabilities. Current liabilities are debts that need to be paid within one year. Long-term liabilities are debts that can\u2019t be paid off within one year.<\/p>\n<h2 id=\"2vg43\"><strong>Income Statement Decoded<\/strong><\/h2>\n<p>The income statement is a document that shows you how much revenue your business has generated over a certain time period. It also breaks down the expenses associated with running the business over that same time period. This document can help you understand your company\u2019s financial standing, as well as provide insight into your company\u2019s operational expenses. On top of that, the income statement can also help you forecast your company\u2019s future. The income statement will break down your company\u2019s revenue into two categories: sales and other operating revenue. Sales are revenue generated from the sale of goods or services. Another operating revenue refers to revenue generated by your company that doesn\u2019t come from the sale of goods or services. This revenue can include things like interest or rent. The income statement will also break down your company\u2019s expenses into two categories: cost of goods sold (COGS) and other operating expenses. COGS refers to the expenses associated with the creation of a product. Other operating expenses refer to the other expenses associated with running the business.<\/p>\n<h2 id=\"as1c8\"><strong>Key Takeaway<\/strong><\/h2>\n<p>The income statement and balance sheet are two key documents you should understand as a business owner. These documents will give you insight into your company\u2019s financial standing, as well as provide you with information about your assets, liabilities, and equity. If you understand these documents, it will be much easier to understand how well your business is doing financially. <a href=\"https:\/\/blackaccountant.net\/the-3-stages-of-a-business-what-stage-are-you-in\/\">Whether you\u2019re just getting started or you\u2019re currently running a business<\/a>, it\u2019s important to understand these documents.<\/p>\n<p>Watch the full episode here: <a href=\"https:\/\/www.youtube.com\/watch?v=4uCIdVylCGU&amp;t=1497s\">Episode 11-Financial Statements Decoded: Income Statement.<\/a><\/p>\n<p><!-- strchf script --><script>if(window.strchfSettings === undefined) window.strchfSettings = {};window.strchfSettings.stats = {url: \"https:\/\/jdotheyward.storychief.io\/en\/episode-11-financial-statements-decoded-income-statement?id=1969960769&type=2\",title: \"Episode 11-Financial Statements Decoded: Income Statement\",id: \"eaaad961-befb-4e27-afb9-74339e14009e\"};(function(d, s, id) {var js, sjs = d.getElementsByTagName(s)[0];if (d.getElementById(id)) {window.strchf.update(); return;}js = d.createElement(s); js.id = id;js.src = \"https:\/\/d37oebn0w9ir6a.cloudfront.net\/scripts\/v0\/strchf.js\";js.async = true;sjs.parentNode.insertBefore(js, sjs);}(document, 'script', 'storychief-jssdk'))<\/script><!-- End strchf script --><\/p>\n","protected":false},"excerpt":{"rendered":"<p>When you first begin your business, it can be challenging to know where to begin. There are so many different things you need to think about, analyze, and understand that it\u2019s easy to get lost in the details. However, one of the most important aspects of creating a successful business is understanding your balance sheet &#8230; <a title=\"Episode 11-Financial Statements Decoded: The Income Statement\" class=\"read-more\" href=\"https:\/\/www.heywardcpa.com\/blog\/2022\/12\/28\/episode-11-financial-statements-decoded-income-statement\/\" aria-label=\"Read more about Episode 11-Financial Statements Decoded: The Income Statement\">Read more<\/a><\/p>\n","protected":false},"author":1,"featured_media":1676,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[96],"tags":[129],"class_list":["post-1675","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-accounting-bookkeeping","tag-heywardcpa-live"],"modified_by":"James E. Heyward CPA","_links":{"self":[{"href":"https:\/\/www.heywardcpa.com\/blog\/wp-json\/wp\/v2\/posts\/1675","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.heywardcpa.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.heywardcpa.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.heywardcpa.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.heywardcpa.com\/blog\/wp-json\/wp\/v2\/comments?post=1675"}],"version-history":[{"count":2,"href":"https:\/\/www.heywardcpa.com\/blog\/wp-json\/wp\/v2\/posts\/1675\/revisions"}],"predecessor-version":[{"id":1740,"href":"https:\/\/www.heywardcpa.com\/blog\/wp-json\/wp\/v2\/posts\/1675\/revisions\/1740"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.heywardcpa.com\/blog\/wp-json\/wp\/v2\/media\/1676"}],"wp:attachment":[{"href":"https:\/\/www.heywardcpa.com\/blog\/wp-json\/wp\/v2\/media?parent=1675"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.heywardcpa.com\/blog\/wp-json\/wp\/v2\/categories?post=1675"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.heywardcpa.com\/blog\/wp-json\/wp\/v2\/tags?post=1675"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}