The Profit & Loss statement is like a thermometer — It tells the temperature of the Business

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In business, you have two basic financial statements,

1. The Balance Sheet

2. The Profit & Loss Statement

Profit & Loss statement is like a thermometer — it tells the temperature of a business. On the other hand, a Balance Sheet will tell us why a business has got that temperature. …

‘Debit’ and ‘Credit’ denotes two opposite effects of one transaction on two accounting heads.

The two most widely used terms in finance and accounting are also the most misunderstood. Whenever I ask participants in my seminar to define Debit and Credit everyone will come up with their own definition. Even most of the definitions by Prof. Google are confusing.

Now I would request you…

Balance sheet is a financial statement that reports a company’s assets, liabilities and shareholders’ equity.

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In my last article, I explained the difference between Finance & Accounting by comparing business with game of football. Let me continue the same to explain Balance Sheets.

Imagine a veteran football player called David. David retires from professional football and wants to start a business. …

They do not use the word “loss”, they call it negative profit.

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A general understanding is Profit = Income — Expenses.

If income is greater than expenses, profit will be a positive number. If expenses are more than income it is a loss. However, accountants are very optimistic people. They do not use the word, loss. They call it negative profit.

Let…

You should know that Finance starts when Accounting ends!

Image of stock market prices
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Is there a difference between Finance & Accounting?

I recently conducted a seminar at a university in Melbourne. In that seminar, I asked the same question to a dozen business owners. Most of them answered ‘yes.’ Even so, they were not able to explain why in simple words. As always, I prefer the KISS method — Keep It…

There are only two rules in business - Rule #1: Always earn more than you spend. Rule #2: Never forget rule #1.

Business Attire
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Awareness of your Business

To know if a business is earning more than its spending at any given point in time, stakeholders should know the pulse (numbers) of the business and numbers are on financial statements.

Unfortunately, many people find it hard to read and understand financial statements and are very dependent on their…

Chinmay Ananda

I teach entrepreneurship at RMIT, Melbourne. Trained over 950 biz owners in Australia, India, China & Indonesia. National treasurer @ PSA: financeacademy.com.au

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