The balance sheet

A balance sheet provides a view of a business’ value at a specific point in time.  A balance sheet shows:

• How solvent the business is
• How the business is financed
• How much money or goods are being used to generate income (known as 'capital')
• How much cash it holds plus what can be easily be converted into cash(known as 'liquid assets')
• The company's ability to pay what it owes

The total assets and capital on the annual balance sheet must always balance, that's why it's called a balance sheet!
For more detail on balance sheets see our article on Understanding balance sheets

The profit and loss account

An annual profit and loss account shows the financial performance of a business.  It records annual sales income, costs and expenses.  A profit and loss account shows:

• Business performance over a specific period of time.
• Records income (revenue from sales) and outgoings (cost of sales plus other overheads and expenses) to show whether a profit or loss has been made
• A summary of invoices that have been raised, or sales income that has been generated, including an estimate of work in progress but not yet invoiced
• Purchases made from suppliers for goods or raw materials, and an estimate of cost for goods/raw materials used but not yet paid for

For more detail on profit and loss accounts see our article on Understanding profit and loss accounts

The cash flow forecast

A cash flow forecast records cash flowing into and out of a business over a specific period of time.  It's used by business' to make sure it can pay its costs when they become due for payment. A cash flow forecast:

• Provides an analysis of when income is expected to be recieved and when invoices and bills need to be paid
• Shows when there is likely to be a cash shortfall, so a business can arrange suitable finance before it's needed
• Shows when there may be a cash surplus, so the money that's not needed to cover costs could be used within the business or invested elsewhere

For more detail on cash flow forecasts see our article on Understanding cash flow forecasts


Free profit and loss templates, free balance sheet templates, and free cash flow forecast templates can be downloaded from the Microsoft Office Online website.