Your Financials:

Balance Sheet – The Balance Sheet shows assets, liabilities and owners’ equity

1. Assets – what you own

2. Liabilities – what you owe to debtors (this could include loans, rent, payroll, taxes,

etc)

3. Owner’s Equity – The net worth of the company. If you sold everything and paid off

all that you owe, it would be the money left

Income Statement

1. Also known as a profit and loss statement. The P&L statement summarizes the

activity of the business for a set period. P&L statements usually include your

Revenue, Expenses, Cost of Goods Sold, Gross profit, operating income, Income

before taxes, Net Income, depreciation

What should you look for on Balance Sheet:

1. Negative balances on an asset – you may have sold something (an asset) and forgot to

reverse the depreciation

2. Negative loan balances - If you have a negative loan balance that means that the lender

owes you money. If you still owe on a loan and you have a negative balance, chances

are you are not separating interest and principal on your payments.

3. Opening Balance Equity – This is a red flag that usually occurs when credits and debits

do not equal and your software put it into an account called “opening balance equity”,

This is a misallocated entry

4. Undeposited Funds – You will find Undeposited Funds under “other current assets”.

Undeposited Funds is money that you have received for a period but have not yet

deposited. If do not have money that you received and not yet deposited, you should

not have a balance in undeposited funds.

5. Balances on the balance sheet do not balance – If your accounts are not reflecting the

correct balances, there is a problem. For instance, you bank balance shows you have

$5,000 at the end of a period but you know you only had $2,000 in the account.

What you should look for on the Income Statement:

1. Negative Cash – If your P&L shows a negative balance, this is usually a red flag (unless of

course you really do have a negative balance). Most often, this occurs because you have

printed checks but have not sent them.

2. Your inventory doesn’t ever change – If your inventory is always the same number,

something is wrong. Inventory fluctuates month to month and rarely would be the

same.

3. Negative Taxes Payable – It is unlikely that the government owes you money. In some

instances, you may have overpaid but that is rarely the case.

4. Gross Margins – If you have consistent pricing, your margins should be consistent month

to month. If you see high fluctuations, there is usually a problem.

Karrie Jackson 

Co-Founder

Contact Us