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GLOSSARY: for Financial Statements

If you are in the construction business, either for a while or just starting in your own business, it doesn’t hurt to review these terms and think about how they currently apply to your company.

Here’s a handy financial statement glossary:

Balance sheet. This provides a snapshot of a company’s assets and liabilities at a particular moment in time, usually the last day of the month or the last day of the year. Assets are items your own and have some value, including cash; accounts receivable; equipment; work-in process; inventory and intellectual property. Liabilities are debts such as accounts payable, payroll, taxes, overbilled amounts and lines of credit. The company’s net worth, which is calculated by subtracting total liabilities from total assets, is also shown.

Cash flow statement. This shows how much cash a company generates for a particular period, and from what source. It is a good indicator of how easily it can pay its bills. It will show if the cash came from profits or if the company had to liquidate some assets to pay the bills. Likewise, it will show if the company needed to borrow money or if it paid down on its debt.

Income statement. Known commonly as a profit and loss statement, the income statement shows revenues and expenses for a certain period, like a month or a year. Its goal is to show which parts of the business are profitable, so in construction it matches revenues and expenses carefully for specific projects. Often overhead is allocated to a specific project.

Retained earnings/equity statement. How much did a company’s net worth grow during the period? If the business is a corporation, the statement details what percentage of profits for that period the company distributed as dividends to its shareholders and what percentage it retained internally. Partnerships and other types of entities will also show the amount retained by the company and the amount distributed to the owners on the equity statement.


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