Accounting and finance · Level 2 to 3, managers and owners
Reading financial statements
The profit and loss account, the balance sheet and why profit is not cash.
- 1modules
- 3.0CPD hours
- 75guided minutes
- Freealways
About this course
Three statements describe a business. The profit and loss account says whether it traded well over a period. The balance sheet says what it owns and owes at one moment. The cash flow statement says where the money actually went.
The single most expensive misunderstanding in business is treating the first as if it were the third. Profitable companies fail every year because profit is an opinion about timing and cash is a fact about the bank.
What you will be able to do
- Read a profit and loss account and explain each line
- Read a balance sheet and explain what it does and does not value
- Explain why a profitable business can run out of money
- Distinguish accruals from cash movements
Modules
Assessment and certificate
Knowledge check after each module and a final assessment at 80 per cent, with unlimited attempts.
A free digital certificate with a verification code that any employer can check, plus an entry on your CPD record.
Questions
Why does the balance sheet always balance?
Because it is the accounting equation presented as a statement. Everything the business controls appears on one side, and how it was funded appears on the other. It balances by construction, so the fact that it balances tells you nothing about whether it is right.
Can a profitable business really run out of cash?
Routinely, and it is the most common way a growing business dies. Profit is recorded when a sale is made, not when it is paid for. A business selling well on ninety day terms while paying suppliers in thirty is profitable on paper and haemorrhaging cash in reality.