A Simple Financial Statement Example

Financial statements are crucial for understanding the health and performance of a business. They provide a snapshot of a company’s financial position and its operating results over a specific period. Let’s examine a simplified example, focusing on an imaginary small business, “Cozy Coffee Shop.”

1. Income Statement (Profit and Loss Statement)

The income statement shows Cozy Coffee Shop’s revenues, expenses, and resulting profit or loss over a period, say, one year.

Revenue	Amount
Coffee Sales	$80,000
Pastry Sales	$30,000
Other Sales (Merchandise, etc.)	$10,000
Total Revenue	$120,000

Expenses	Amount
Cost of Goods Sold (Coffee Beans, Pastry Ingredients)	$40,000
Rent	$12,000
Salaries & Wages	$30,000
Utilities	$6,000
Marketing & Advertising	$2,000
Other Operating Expenses	$5,000
Total Expenses	$95,000

Net Income (Profit) = Total Revenue – Total Expenses = $120,000 – $95,000 = $25,000

2. Balance Sheet

The balance sheet presents a snapshot of Cozy Coffee Shop’s assets, liabilities, and equity at a specific point in time, like the end of the year.

Assets	Amount
Cash	$10,000
Accounts Receivable (Money owed by customers)	$2,000
Inventory (Coffee Beans, Pastries)	$5,000
Equipment (Coffee Machines, Ovens)	$20,000
Total Assets	$37,000

Liabilities	Amount
Accounts Payable (Money owed to suppliers)	$3,000
Loan Payable (Bank Loan)	$5,000
Total Liabilities	$8,000

Equity	Amount
Owner’s Equity (Capital)	$29,000
Total Equity	$29,000

Assets = Liabilities + Equity = $37,000 = $8,000 + $29,000

3. Statement of Cash Flows (Simplified)

This statement summarizes the movement of cash both into and out of Cozy Coffee Shop during a specific period. We’ll focus on the operating activities section.

Cash Flow from Operating Activities:

• Net Income: $25,000
• Adjustments to Net Income (e.g., changes in accounts receivable, accounts payable): -$1,000
• Net Cash Flow from Operating Activities: $24,000

Key takeaways: This simplified example highlights the core elements of financial statements. Analyzing these statements allows business owners and stakeholders to assess profitability, liquidity, and overall financial stability. Remember that real-world financial statements are far more complex and detailed.