Read Financial Systems and Protect Cash

Financial statements answer different questions

An accounting system captures, classifies, authorizes, posts, summarizes, and reports transactions so managers can protect resources and make decisions. A chart of accounts gives each asset, liability, equity, revenue, and expense a consistent home. Source documents such as purchase orders, receiving records, invoices, time records, sales records, deposits, and approvals support the entries. The balance sheet reports assets, liabilities, and equity at one point in time and must satisfy assets equals liabilities plus equity. The income statement reports revenue and expenses over a period and ends with income or loss. The statement of cash flows reports cash from operating, investing, and financing activities over a period. A statement of changes in equity explains owner investment, distributions, and accumulated results when applicable. These reports are linked but not interchangeable. A profitable operation can lack cash when receivables rise or equipment is purchased. A cash increase can accompany a loss when money is borrowed. Read the period, accounting basis, comparison, and notes before interpreting a number.