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  • Writer's pictureTrusha Desai

How Does Money Work?

Trusha Desai Innovation Management Inc focuses on coaching, bookkeeping, tax.

When we analyze the Balance Sheet of the operations of our business, there is a section titled "Current Assets". This includes mundane items such as Cash on Hand and Petty Cash. There is a current balance of our chequing and savings accounts.

When we have come to terms with the fact that the chequing account balance on the Balance Sheet does not match the online bank statement balance, we can focus on whether our business is profitable or otherwise. We need to remember that gross profit and cold hard cash are two different items and found on different financial statements.

Therefore, in order to understand how the profit that is garnered from our business ends up on the Balance Sheet, the simple equation is Cash In Flow - Cash Out Flow = Cash. Cash In Flow consists of sales, deposits, retainers, loans, lines of credit. The healthiest would be sales and upfront customer deposits. Cash Out Flow epitomizes payroll, cost of goods sold, purchases, rent, advertising, meals, vehicle and travel expenses. The more detailed your chart of accounts, the more expenses will appear on the Income Statement.

For a discussion of your financial statements, for coaching, training and ongoing boutique bookkeeping, please contact me.

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