Financial Position Summary

Mastering the 3 Core Financial Statements: What Every Professional Should Know Understanding the difference between the Balance Sheet, Income Statement, and Cash Flow Statement is essential — not just for accountants, but for anyone making business decisions. Here’s a clear breakdown: ⸻ 1. Balance Sheet – “What you own vs. what you owe” It presents the company’s financial position at a specific date. Formula: Assets = Liabilities + Equity It includes: • Assets: Current (cash, receivables) & Non-current (PPE, investments) • Liabilities: Current (payables) & Long-term (loans, bonds) • Equity: Shareholder contributions and retained earnings Think of it as a snapshot of your company’s net worth. ⸻ 2. Income Statement – “How much you earned” Covers a period of time (monthly, quarterly, annually). It shows profitability by measuring revenue and matching it with related expenses. Main sections: • Revenue – COGS = Gross Profit • Minus Operating Expenses = Operating Income • Add/Subtract Non-operating items = Pre-tax Income • Minus Taxes = Net Income This is your company’s performance scorecard. ⸻ 3. Cash Flow Statement – “Where the money actually goes” While the Income Statement may show profit, the Cash Flow Statement shows real liquidity. It’s divided into three sections: • Operating Activities: Cash from daily business (net income adjusted for working capital & non-cash items) • Investing Activities: Cash used for or received from assets (PPE, investments) • Financing Activities: Cash from issuing debt/equity or paying dividends Profit is not always cash — and this report proves it. ⸻ Quick Tip: • Income Statement = Performance • Balance Sheet = Position • Cash Flow = Liquidity Understanding all three gives you a 360° view of any business. #FinanceForEveryone #FinancialStatements #AccountingBasics #SeniorAccountant #CashFlow #BalanceSheet #IncomeStatement #FinanceTips #LinkedInLearning

To read financial statements, understand the balance sheet, income statement, and cash flow statement, and the notes to the financial statements. Analyze these statements by looking for trends across periods, understanding key ratios, and checking for consistency to get a comprehensive view of a company's financial health, profitability, and cash management. The Three Main Financial Statements 1. Balance Sheet: a. What it shows: A company's financial position at a specific point in time, detailing its assets (what it owns), liabilities (what it owes), and equity (owner's stake). b. Key equation: Assets = Liabilities + Shareholders' Equity. c. How to read it: Look at the types of assets and liabilities to understand liquidity and long-term debt. 1. Income Statement (P&L Statement): a. What it shows: The company's profitability over a period, summarizing revenues earned and expenses incurred to arrive at net income (profit). 2. Key elements: Revenue, Cost of Goods Sold (COGS), Gross Profit, Operating Expenses, and Net Income. 3. How to read it: Track trends in revenue and expenses to understand how the company is performing. 3. Cash Flow Statement: a. What it shows: The movement of cash in and out of the company from its operating, investing, and financing activities over a period. b. How to read it: See if the company generates enough cash from its core business to cover its costs and investments. Additional Important Sections Notes to the Financial Statements: These provide critical details on the accounting methods used, assumptions, and other information that clarifies the numbers in the main statements. Key Steps for Analysis 1. Review the Annual Report: Financial statements are typically found within the company's annual report, which also includes the Management Discussion & Analysis (MD&A) and information about business strategies and risks. 2. Understand Business Context: Before diving into the numbers, understand the company's operations and overall strategy. 3. Analyze Trends: Look at financial statements over several periods (years or quarters) to identify trends in profitability, expenses, and other key metrics. 4. Use Ratio Analysis: Calculate and analyze financial ratios (like return on assets or current ratio) to evaluate the company's profitability, efficiency, and financial strength. 5. Check for Consistency: Ensure that the figures across the different statements are logical and consistent.

INCOME STATEMENT | BALANCE SHEET | CASH FLOW STATEMENT . PRACTICAL EXAMPLES ACCOUNTANTS SHOULD MASTER💡 Many accountants understand these 3 financial statements in theory but real life practice brings them to life! Let’s walk through each of them with simple examples: 1. INCOME STATEMENT: Performance of your business Purpose: Shows how profitable the business is over a specific time (monthly, quarterly, yearly). Real-Life Example: ABC Furniture Ltd sold TZS 500M worth of furniture in 2024. They had: Sales Returns of TZS 20M, Sales Discounts of TZS 10M. Thus, Net Revenue = 500M - 20M - 10M = TZS 470M. Their Costs included: Direct Materials: TZS 200M Direct Labor: TZS 100M Manufacturing Overhead: TZS 50M COGS = 200M + 100M + 50M = TZS 350M. Gross Profit = 470M - 350M = TZS 120M. Operating Expenses: Salaries, Rent, Advertising, R&D = TZS 40M. Operating Income = 120M - 40M = TZS 80M. After tax and other income adjustments, they reported Net Income of TZS 60M. 3. BALANCE SHEET: Financial Position of your business Purpose: Shows financial position (Assets, Liabilities, Equity) at a specific date. Real Life Example (as of 31 Dec 2024): Assets: -Cash: TZS 50M -Accounts Receivable: TZS 80M -Inventory: TZS 100M -Property, Plant & Equipment: TZS 300M Total Assets = TZS 530M Liabilities: -Accounts Payable: TZS 70M -Short-term Loans: TZS 30M -Long-term Loans: TZS 100M -Tax Liabilities: TZS 20M Total Liabilities = TZS 220M Shareholders' Equity: -Share Capital: TZS 200M -Retained Earnings: TZS 110M Total Equity = TZS 310M Balance Equation: Assets (530M) = Liabilities (220M) + Equity (310M) 3. CASH FLOW STATEMENT: Cash Movements Purpose: Tracks how cash comes in and goes out during the period. Real-Life Example (2024): Operating Activities: -Net Income: TZS 60M -Add Depreciation: TZS 20M -Working Capital Changes (Increase in Receivables, Payables, Inventory): Net decrease of TZS 10M. Operating Cash Flow: TZS 70M. Investing Activities: -Purchased Equipment: TZS -50M -Sold Old Vehicle: TZS +5M Net Investing Cash Flow: TZS -45M. Financing Activities: -Loan Repayment: TZS -20M -Issued Shares: TZS +10M -Dividend Paid: TZS -5M Net Financing Cash Flow: TZS -15M. Total Cash Movement: 70M - 45M - 15M = TZS 10M increase in cash. IN SHORT: 📌Income Statement = Is the business profitable? 📌Balance Sheet = What is owned vs. owed? 📌Cash Flow = Where is the cash coming from and going? 💡 To My Fellow Accountants: These 3 financial statements are the backbone of our profession. But their power lies in understanding the story behind the numbers. ✅ Learn the story. ✅ Advise better. ✅ Advance your career. 👉 What practical examples have you seen in your accounting career? Share in the comments let’s educate each other! #Accounting #Finance #FinancialStatements #IncomeStatement #BalanceSheet #CashFlow #Taxation #BestConsultantsTZ #LinkedInLearning #FinancialAnalysis