How AI Can Simplify your Income Statement and Balance Sheet?
What is an Income Statement?
A list of your company’s finances spanning across financial periods. It covers both inflow and outflow of cash, and can be used for future projections for the company. A CFO, when armed with intelligent AI software and a comprehensive Income Statement can give almost prescient advice for the future of the business!
Often different businesses will have different categories involved in the calculations due to the nature of their services and products. However, almost all companies will include:
- Sales Revenue
The cost of every service provided, product sold etc.
- COGS / COS
Your ‘Cost of Goods Sold’ or ‘Cost of Sales’ is how much it cost to provide the products or services. Parts, labour, and materials all come under this section.
- Gross Profit
How much profit your company made from the services, minus the costs you paid for. Simply take away your COGS from your Sales Revenue.
- Operating Expenses
This is a large and varied area. Usually containing your COGS, it will also contain marketing costs, salaries, office rent, bills, insurance, depreciation, and promotions. Basically, anything that costs money to run your business? All of that goes here.
Earnings before Tax, or ‘Pre-tax Income’ is that wonderfully large number before you have to pay your taxes. By taking away all Operating Expenses from Sales Revenue, you can find your EBT. The larger this number is, the more Tax you’ll be paying, so make sure you’ve read up on R&D Tax Credits to help reduce this number!
Be it Corporation or Income, a proportion of your EBT goes to HMRC.
- Net Income
Subtract the Taxes from your EBT and you have your company’s retained earnings. This key-line item is required for multiple financial statements on a yearly basis!
These are the core essentials on any Income Statement. As with any company, your CFO will have other items and subcategories to tailor into it! But why is an Income Statement important? Because it’s one of three essential financial documents used in Corporate Finance!
What is a Balance Sheet?
Whereas an Income Statement reflects the financial movements over periods, a Balance Sheet is closer to a snapshot of your company’s finances at certain points in time. It contains your company’s Assets, Liabilities, and Shareholder Equity.
Assets include all the resources your company owns, be it property or cash.
Liabilities include your company’s obligations, usually debt.
The balance sheet is so named because of the calculations involved. For example, your company takes a loan from the bank for £500,000 and immediately your Assets go up by £500,000. At the same time, your long-term Liabilities are increased by the same amount. Similar calculations are made with the Shareholder Equity for more complex businesses. In short, Assets = Liabilities + Shareholder Equity.
Why is a Balance Sheet important? Because along with the Income Statement, it’s one of three essential documents used in Corporate Finance.
These documents contain an incredible amount of information. A staggeringly huge amount. In reality, even the best CFO will be stuck grinding through numbers for days or even weeks depending upon the size of the operation.
So how can AI help with Income Statements? And how can AI help with a Balance Sheet?
Intelligent, cloud-based Accounting Software from Accountancy Cloud can be used in every corner of your business. Throughout all bookkeeping, AI software that can integrate with multiple platforms takes away the mind-numbing processing work. Working as a full financial team 24/7, the best software stays up-to-date, and can keep you and your team informed at all times.
Numbers are gathered from every corner of your business and calculated in less time than it takes to tap on your smartphone. Freeing your talented CFO to become a strategic advisor, and help with planning the future, not calculating the past. It also enhances audit and fraud detection abilities, and improves overall operational efficiency.
In short, AI Accounting has revolutionised businesses globally. It saves time, effort, and streamlines the way companies are run in incredible ways. In today’s business, you can’t afford not to use it!