Finance for dummies

No matter if you are entrepreneur or freelancer, there are always areas and activities in a business that sound too intimidating and complex to do on your own.

Let’ s take finance for example. So many terms, documents formulas, and numbers that you feel like you need additional college to understand and organize all of it. But once you will catch the basics, everything will seem logic and easy.

In order to help you with setting your financial knowledge we explain the basics terms of finance:

INVOICE

The mother of your cash flow. It can be a sales invoice or a purchase invoice.

The sales invoice is the document sent by you to your client after you have completed a service or sold a product. The purchase invoice is the document you receive from your service providers or suppliers for goods or services your company has received. No matter what kind, the invoice always consists of same details: seller information, buyer information, the products or services sold, including their quantities and prices.

In an invoicing software, the sales invoice goes to account payable, whereas a purchase invoice goes to account receivable.

BALANCE SHEET

A balance sheet is practically the facebook financial status of your company. It summarizes company’s assets, liabilities and shareholders’ equity at a specific point in time. These three balance sheet segments give you an idea as to what the company owns and owes, as well as the amount invested by shareholders.

The balance sheet adheres to the following formula:

Assets = Liabilities + Shareholders’ Equity

PROFIT AND LOSS STATEMENT

A profit and loss statement (P&L) is a financial statement that summarizes the revenues, costs, and expenses incurred during a specific period of time, usually a fiscal quarter or year. These records provide information about your company’s ability – or lack thereof – to generate profit by increasing revenue, reducing costs, or both.

CASH FLOW STATEMENT

A cash flow statement is one of the quarterly financial reports publicly traded companies are required to disclose to the U.S. Securities and Exchange Commission (SEC) and the public. The document provides aggregate data regarding all cash inflows a company receives from its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given quarter.

All these terms and documents may be difficult to understand at first, but for starters, you can find a low-cost accounting software that will do all the work for you.

Your activities will be automated and most of these reports will be clicking away from you. All you have to do is update your invoices and expenses on a regular basis.