Income Statement, Balance Sheet and Cash Flow Statement

The Income Statement, Balance Sheet and Cash Flow Statement are all three considered financial reports. NetSuite aside, these are usually the three most important reports for any business, and we’ll take a look at them here. We can get to the Income Statement, which is also called Profit and Loss or P&L in some systems, by going to Reports, Financial, and Income Statement. Before I click this though, take a look at the flyout menu. If I clicked right now we would be taken to the summary version of this report. But, we also have the option to go to the detail version, and we have options to customize the summary and the detail. One of the first things I want to point out, is that while there are customization options, they do not allow you to override the native reports. I have had more than a few accountants complain about this, however this is not really a bad thing. Because, think about it. You can customize the report if you want, and save it as a different name. Then you can always use that report. However, if you ever need to get back to a baseline, you can. This can save you a ton of time, and if you use financial auditors who are familiar with NetSuite, it can also save them a lot of time, when performing an audit. Both of the customize options would take us to the report builder. Let’s go ahead and click on the Income Statement to bring up the summary version. This is a pretty small report for two reasons. First, it is a summary, and usually should not be massively detailed, though I’m betting yours is a bit larger. This is because of the second reason. My instance of NetSuite is a demo instance, and it doesn’t have that many transactions. If I change the date filter down here, all the way back to the beginning of time, for my instance, we will see a few more transactions. I also need to click refresh. Here we see quite a bit more data, and I am guessing this is a lot closer to how your report looks, even for a short period of time. In our income statement, we see how revenue has flowed into our business, and how expenses have flowed from our business, for the period of time we selected here at the bottom. The amounts are broken up based on the accounts, and are summed up based on child accounts summing to their parent accounts. For example, if we look at these 5000, 5002, and 5004 accounts, they all add up to the total we see in bold down here. The parenthesis of course represent negative amounts. One of the things I want you to notice though is that the numbers do not dictate how the accounts roll up. For example, all of these five thousand something accounts down here do not roll up to this 5000 subcategory, nor should they. But also notice that this 6092 account sums up under Cost of Sales here in bold. Now actually, this account is numbered incorrectly, and should be in the fives rather than the sixes. But I did this on purpose to illustrate a key point. The account numbers do not dictate how things roll up in NetSuite. What accounts are subaccounts of others is what controls this. We can collapse any of these sections to see less detail with the minus sign. We can also expand any collapsed sections by clicking the plus sign. Here at the bottom we also have our Net Income. Usually seeing this as a positive amount is a good thing, but for startups or companies who are expanding, this can often be negative. This really just shows if you made, or lost, money for the period selected. You can click to drill down to more specific information. What you click on determines where you will be taken. For example, I’ll right click on 4000 Sales, and open this in a new tab. I’ll also do the same thing for the amount column. If we take a look at the tab that opened when we clicked the name and number, we were taken to the general ledger where we see each transaction in detail, and see both sides of the transaction. That is, we see the credit and the debit. Most of these are sales, so we see a credit, however if we scroll to the bottom we have a few credit memos and refunds which will debit this account. In the next tab, the one where we clicked on the dollar figure, we see the income statement detail. These are pretty much the same data in both reports, though they are shown a little differently. In either of these reports, we could drill down further, and even find specific transactions. How far you can drill down, and how far you need to, to get this detailed, is going to depend on what report you are using, because you can do this for most reports. One of the things NetSuite does, is segment data by department, class and location. As well as by subsidiary, if you are using a OneWorld account. You can filter this and the other financial reports by these categories. We can already see the subsidiary context here, and we can select what subsidiary we want to see. We can also look at consolidated accounts, which rolls up the selected subsidiaries, and those that are under it. That’s actually what we are looking at now. If we click More, over here, we get options to filter this by department, class, and location. These are the primary filters, that most people use when filtering this, and other financial reports. Back when we were talking about the chart of accounts, and setting up an account, we talked about how departments, classes, and locations work. This is one of the places where they really come into play, and start to show their usefulness. You can also filter this by customer or by item, which is helpful if you are trying to determine the profitability of a specific item. Or, if you are trying to decide if there is a customer who is costing more than they are worth. Any time you change one of these filters, you need to click Refresh for the report to filter the data, based on your selection. These are also sticky settings, so they will remain at whatever you select, the next time you run this report. You can select more than one option, by holding down the control key. If you make a selection, and later want to clear it, that is you want to get back to seeing everything, you can click the All check box down here. Let’s go back and open up the income statement detail. Again, from the Reports, Financial, Income Statement, and this time clicking on Detail in the flyout menu. Initially this looks very similar to how our Income Statement summary report looked when we first opened it, but there are a few differences. We have detail under each account and do not have to drill down to get to this detail. Let me change the date, and this will become much more apparent. I’ll go ahead and go back to the beginning of time, again for this NetSuite account. And, we need to remember that we have to click refresh to have the report refresh itself. Now, we can see all kinds of detail that we couldn’t see before. In fact, this is the same as what we drilled down into before. But here I can collapse these accounts, and easily go between them. I can still drill down further to the transactions if I need to. So, which of these you will use, will depend on what you need to do, and which one you feel more comfortable with. I am going to go ahead and close these unnecessary tabs, and we can take a look at the balance sheet. We can get to the balance sheet by going to Reports, Financial, and Balance Sheet. Notice again, we have a detail option, as well as customization options. I’ll just click on this one, and we will look at the summary. Unlike the Income Statement, which represents a period of time, the Balance Sheet is a snapshot of a point in time. Generally speaking, if you are looking at a more recent report, this will change as transactions are created. If you are looking at one from a closed, or locked period, the data should not change. Our balance sheet shows the balances in all of our accounts, for a given point in time. Similar rules apply to it, that applied to the Income Statement. We can drill down, by clicking on what we want to drill down to. Just like before, we can apply filters to allow us to see data that only applies to one cross section of the business. Also, just like before, the account numbers do not dictate where something goes in this list, but rather what it is a subaccount of does. In addition to the standard balance sheet that we are looking at now, there is also a comparative balance sheet. This is located under the same Reports and Financial menu, let’s click on Comparative Balance Sheet to take a look. This report allows you to compare your balances from one period, to those in a different period. Without selecting anything, this usually defaults to comparing whatever date you selected, to the end of the previous year. This however can be changed, by selecting a different option, from this End Of selection box. The rest of this is the same as the other balance sheet we just looked at. The last financial report I want us to look at, is the Cash Flow Statement. This is sometimes called the Statement of Cash Flows. Where the income statement showed us whether we were making money or not, and the balance sheet showed us the balances of our accounts. The cash flow statement helps us look at cash coming into, and going out of the business. There is a saying in business that cash is king, and basically what it means is that cash, and cash equivalents, are what can be used to run a business. If your business runs out of cash, tons of inventory aren’t all that useful. Generally speaking, you can’t pay people, or your bills, with anything other than cash. The Cash Flow Statement helps you figure out if you will have enough to pay those bills. We can open this up by going to Reports, Financial, and clicking Cash Flow Statement. This report is very similar to the others, in that it can be filtered based on a number of different criteria. When you set these settings, they are sticky, and will usually remain in place between closing, and re-opening the report. Now we don’t really have a lot here, and this is not so much due to the period of time we are looking at. It has more to do with us having a simpler setup, and just not that much data in this NetSuite account. If I change this to a longer period of time, we can see, there really isn’t much difference. This is pretty much all there is for the Cash Flow Statement. NetSuite started as an accounting system, and these are generally considered the most important accounting reports for any business. Now you should have a good idea of how to use them.