1. Understand what is measured on a balance sheet. 2. Understand the term depreciation. 3. Understand what goes on an income statement. 4. Understand what is measured in a cash-flow statement.
5. Appreciate the importance of forecasting when developing a cash-flow projection statement.
It sounds extraordinary, but it’s a fact that balance sheets can make fascinating reading. 
All business plans should contain sets of financial
statements. However, even after the initial business plan is created, these financial statements
provide critical information that will be required for the successful operation of the business.
They not only are necessary for tax purposes but also provide critical insights for managing the
firm and addressing issues such as the following:
• Are we profitable?
• Are we operating efficiently?
• Are we too heavily in debt or could we acquire more debt?
• Do we have enough cash to continue operations?
• What is this business worth?
There are three key financial statements: the balance sheet, the income statement, and the cash-
flow statement. Every business owner or manager needs to be able to correctly interpret these
statements if he or she expects to continue successful operations. It should be pointed out that
all three financial statements follow general formats. The degree of detail or in some cases
terminology may differ slightly from one business to another; as an example, some firms may
wish to have an extensive list of operational expenses on their income statements, while others
would group them under broad categories. Likewise, privately held businesses would not use the
termshareholders’ equity but rather use owner’s equity in their balance sheet, and they would
not list dividends. This aim of this chapter is to provide the reader with a broad overview of
accounting concepts as they apply to managing small and mid-sized businesses.