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bhayne · Sep 21, 2006, 07:36 AM

I'm a principal owner and director of my company. Every once in a while the accountant gives me the financial statement.

I have no idea how to interpret this. On the cover there is an index with 12 pages and 3 schedules. I believe the only important one is page 1, the balance sheet.

There are a lot of numbers and everything balances out (kinda makes me suspicious but I guess that's why it's called a balance sheet). I think the most important line is 'shareholders' equity'.

Where's my money? In Share capital, contributed surplus or retained earnings. And how can I check these numbers are correct (all the other pages must be supporting evidence)?

ScottGem · Sep 21, 2006, 09:01 AM

We would need to know more about the structure of your company. Is it incorporated? Publicly traded?

Generally shareholder equity is what is what the company is worth after liabilities are paid out.

bhayne · Sep 21, 2006, 10:14 AM

It's incorporated. I asked my accountant and she said we're doing quite good. Thanks.

ScottGem · Sep 21, 2006, 11:29 AM

I would have a sitdown with the accountant and ask her to explain the financials in detail. If she gives you a hassle about it, it would set off alarms for me.

CaptainForest · Sep 21, 2006, 07:59 PM

Originally Posted by bhayne

I believe the only important one is page 1, the balance sheet.

There are alot of numbers and everything balances out (kinda makes me suspicious but I guess that's why it's called a balance sheet).

Lol. That is funny. A Balance sheet HAS to balance out. If it doesn’t, your accountant is incompetent.

On to your questions,

You also want to take a look at your Statement of Cash Flows. It is wonderful if you are making a profit, but do you have the cash to sustain yourself?

You also want to look at Return on Equity (Your Net Income divided by your total Shareholder’s Equity). Are you making a good return on your investment?

You also should consider hiring an auditor to audit your books. You should make sure your accountant is not stealing anything from your business. I know you probably trust her and all, which is great, but a lot of cases, theft occurs even with the most trusted of employees.

I am not saying do an audit every year, because that will get VERY expensive. But once and a while (every 3 years or so) would be OK if it’s a small company.