Learn How To Read Your Internal Financial Reports

For The Business Owner Working From Home

Published March 2009 | Edited August 30, 2024

No previous accounting training or bookkeeping training? No problem! This section (the whole website actually) is strictly for the non-accountants. It was designed for small business owners working from home with no financial background.

Whether or not you are doing your own bookkeeping or have hired a bookkeeper, you need to learn how to read, interpret and use the information you’ve painstakingly compiled to help you run your business.

This free bookkeeping training helps YOU with the numbers side of your business … not the data entry … but the real numbers that drive your business. We'll will focus on financial statement reporting which is different from income tax return reporting.

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As a self-employed business owner, working from home can be an isolating experience at times. I sometimes go for days without interacting with another human on a face-to-face basis (lots of phone and internet conversation though.) ... just me and my animals conversing with each other and with nature! I talk a lot to myself some days.

I work from home. Even though I have accounting training, I was faced with the problem, "Where do I turn now for resources and guidance because I no longer have co-workers down the hall?" It was one of the challenges I faced when my commute to work went from 60 minutes to 60 seconds. ;-)

It's why I started this website ... a resource of practical information and basic accounting training for home based businesses.

Executive Summaries

Business coach Susan Martin from Business Sanity.com explains a quick method of calculating your profitability manually in "Computing Business Profitability".

I like it because it teaches you how the numbers from your financial statements work (it's painless and relevant accounting training) ... instead of just relying on your computer to spit the numbers out for you. Think of it as a way to proof your financial reports.

For those of you keeping manual books or who don't have regular financial statements, it's a great way to determine if you are making money ... instead of waiting for your accountant to give you the big surprise at year-end.

Here is Susan's method ... I've modified it slightly so that you have more of a template that you can setup and use all the time ... plus I snuck in one more calculation so you also have your owner's equity.

On a clean sheet of paper ... or create your own bookkeeping worksheet template in an Excel spreadsheet ... with your accounting ledger at hand (you do need fairly up-to-date record keeping to use this method):

1. Make six columns across the top and call them Account, Jan 1, Today, Change, Plus, Minus.
2. Under the Account column, write down:checking, savings, accounts receivable, inventory (at cost), goods in process (at cost), capital assets. These are your assets (what your business owns) so mark the next line with Total Assets.
3. Continue under the Account column, skip two lines ... then write down:accounts payable (include tax payable accounts like GST), credit card loans. These are your liabilities (what your business owes) ... so mark the next line with Total Debt.
4. Under the Account column again, skip two lines and write Owner's Equity.
5. Under the Jan 1 column, write down the opening balance on Jaunary 1 for each of the accounts you listed above. Your opening balance should be the same as your December 31 closing balance.
6. Under the Today column, write down today's balance for each of the accounts you listed above.
7. Subtract column three from column two ... show the change as a positive or negative number in the Change column.

Your (rough) income statement:

• For your asset accounts (cash, accounts receivable, inventory and goods in process, capital assets) do this:

1. If the account balance is larger now than at the beginning of the year, put the calculated change in the Plus column.
2. If the account balance is smaller now than at the beginning of the year, put the calculated change in the Minus column.

• For your liability accounts (accounts payable, credit card or loans) do this:

1. If the account balance is smaller now than at the beginning of the year, put the calculated change in the Plus column.If the account balance is larger now than at the beginning of the year, put the calculated change in the Minus column.
   
2. Total the Plus and Minus columns.

• Subtract the Minus Column from the Plus Column ...

1. A positive balance means you are profitable .. Whoo hoo!
2. A negative balance means you are losing money. :0(

Accounting training made easy! Now for the extra calculation I snuck in ...

Your (rough) balance sheet:

• Under the Today column, add up your assets and write the number down on the line I had you mark as Total Assets.
• Under the Today column, add up your liabilities and write the number down on the line I had you mark as Total Debt.
• Under the Today column, if you subtract your Total Assets from your Total Liabilities, you have your Owner's Equity (how much you have invested in the business ... not to be confused with the value of your business).

I'm not sure if you figured it out ... but the Plus column is Debits and the Minus column is Credits. You can find a "cheat table" on Debits and Credits that will help you keep them sorted out.

Now this mini accounting training lesson wasn't too bad, was it?

Susan Martin offers financial management coaching services (relevant accounting training) for small business. You can contact her through her website. I have not used her services, but I like her blog and management articles.

P.S. The more you practice doing this mini accounting training lesson, the more likely it will be that you will begin to intuitively understand the numbers that drive your business.

P.P.S. If you liked this sidebar, you might also like this quick method of estimating your cash flow.

There are so many business skills to learn about when running your own business. You may not need formal accounting training but developing financial skills will help you beat the odds of still being in business five years from now.

I have spent some time scouring the internet looking for sites that are designed for business people without an accounting background … non-accountants.

Two sites that provide excellent basic accounting training for small business owners that do not have a financial background are:

• reallifeaccounting.com - no longer available John retired. I will be looking for a replacement
• dwmbeancounter.com

To your ongoing business success!

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Bookkeeping Essentials › Accounting Training