Income statement or Profit & Loss: Income statement is also known as trading profit and loss account. It adequately captures all revenues minus expenses and lets you know if the business is running at a loss or making a profit. It also allows you to
monitor operating performance by tracking income and operating expenses.
Determine the areas of your business that are sufficiently and insufficiently funded.
Identify the items that contribute to high operating expenses such as telephone expenses, fax or mail
Keep track of sharp increment in product returns as a percentage of items sold
calculate income tax figures adequately
Balance sheet: A balance sheet lets you know the financial position of your company at a given period of time. In other words, it allows you to see an accurate assets balances your company owns and what are the liabilities against such assets. It also helps you;
Identify your business financial strength and weakness
Identify and analyze trends, particularly in the area of receivables and payables. For example, if your receivables cycle is lengthening, maybe you can collect your receivables more aggressively.
Consider and explore possibilities for expansion of your business
Gauge the amount of revenue and expense your business can handle
Draw out a plan to enhance cash reserves if need be.
Make moves to avoid a cash shortage.
Without an accurate and well-prepared balance sheet and income statement, it would be impossible to prepare a comprehensive financial statement report. Consequently, obtaining loans from banks and attracting potential investors would be challenging because it would be difficult to determine the profitability and value of your business.