iNBEE Financial

With the accrual basis of accounting there 4 business statements prepared: 1. Income statement 2. The statement of retained earnings 3. The balance sheet 4. The statement of cash flows.

The income statement is used to show the company’s net income or profitability, in cash-basis accounting a small business might still prepare an income statement because it helps the owners in estimating their profitability. This income statement in cash-basis accounting is more like a statement of cash follows in accrual-basis accounting. There would be no need for a business owner to do double work, with that stated, they would not create a statement of cash flows. Most small business owners since they are often the only equity investor would have no need to provide a statement of retained earnings. A company using cash-basis accounting would prepare balance sheet even if the assets, liabilities, and equity would be over or understated. It is a good idea to have a general account as to the value of your assets. Small business owners or cash basis accounting systems would take into account how much cash is on hand, property, plant, equipment, and supplies; as well as how much money do we owe.

In my experience with small business owners using cash-basis account often provide me with a collateral list of all of their assets, and they list their liabilities on what we call a debt schedule. We often ask for a personal financial statement to determine the credit worthiness of a potential borrower.