This guide is general educational information, not individualized accounting or tax advice. Consult your CPA for tax treatment and other specialized accounting questions.
Profit and loss: activity over a period
The profit and loss statement summarizes income and expenses over a selected period. It is useful for comparing operating results, but its accuracy depends on sound transaction categorization and the accounting method in use.
- Review expense category changes.
- Compare similar reporting periods.
- Investigate entries that look misplaced or unusual.
Balance sheet: financial position at a date
The balance sheet summarizes assets, liabilities and equity. It can help you review bank balances, loans and other accounts at a particular point in time. A balance sheet should agree with well-maintained accounting records.
- Compare bank and credit-card balances with reconciled records.
- Review unfamiliar asset or loan account balances.
- Consult your accountant about complex classifications.
Cash flow: changes in available cash
Cash flow and accounting profit do not always move together. Equipment purchases, borrowing, loan principal and timing differences can affect cash without appearing in the same way on a profit and loss statement.
- Review whether major business purchases affected cash.
- Understand the difference between operating results and cash position.
- Discuss financing and cash needs using current records.
Use the reports together
A helpful review starts with up-to-date books and asks what changed in each statement, what the business context explains and which figures need further investigation. Large movements can be normal, but they should be understood.
- Confirm reconciliations were completed.
- Check large changes in categories and balances.
- Prepare questions for your accountant or bookkeeper.
Common pitfalls to avoid
- Treating the bank balance as the company’s profit.
- Assuming a large equipment purchase affects every financial report in the same way.
- Using statements with unresolved reconciliation differences.
Good financial reporting begins with consistent categories and reconciled accounts; interpretation comes next.
Additional recordkeeping guidance
Want someone to handle the bookkeeping?
Nick offers virtual bookkeeping support and a free introductory conversation to discuss your situation. Scope and pricing are explained before you decide to proceed.
Ask Nick about your bookkeeping ↗