As a small business owner, you’ll have to wear many hats, from organizing your merchandise to marketing your services. In fact, you might not even be familiar with financial essentials like cash flow and income statements. In most cases, these are best left to a CPA, but it’s still important to learn why they matter. If you’ve never drawn up these statements before, take a look at the following guide.

What’s the Difference Between a Cash Flow Statement & an Income Statement?

When you draw up a cash flow statement for your business, you’ll make a record of all the currency that came into your hands over the course of a month, as well as how it left your possession. For example, while you made cash from selling hair products, you spent some on supplies for the office, snacks for your employees, and parking fees. In the end, the report will show whether or not you made any cash and the success of your company in the short-term.

Your income statement will take into account all types of income, including cash, deposits, revenues, and the depreciation of property. It is also measured by the month and is a more conventional financial statement. By taking into account both cash and non-cash items, the income statement will show a more comprehensive picture of a company’s ability to make a profit.

Which Should You Use?

Most business owners should aim to use both a cash flow statement and an income statement, as they are directly linked. Whatever the resulting positive (net profit) or negative (net burn) number is at the end of the income statement, it can be used to calculate your business’s cash flow.

When you refer to the cash flow statement, you can make financial decisions right away, such as whether or not you can afford to pay your rent or employees at the end of the week. The income statement will show you the long-term viability of your business, helping you make decisions like whether or not to renew your lease at the end of the year.

Understandably, the thought of compiling all your transactions into statements can seem like an impossible feat. While it is possible, it’s easy to make mistakes, and Linda M. Shiraiwa CPA, PS Inc. of Gig Harbor, WA, is here to help you avoid them. This CPA will go over all your incoming and outgoing expenses, so you can maintain your books, file your taxes, and compensate your employees properly. To learn more about her skills, visit the website. You can also call (253) 858-6030 to schedule an appointment with this trusted CPA today.