Understanding Financial Statments / Discussion Question - Research Paper Example

REVENUE AND EXPENSES In order for the entrepreneur to effectively estimate the first year’s monthly revenues, several factors must always be taken into account. In this regard, it should always be realized that the profits seen in the income statement might not always equal the cash flows of the business. This arises out of the fact that some of the expenses of the business are normally paid in cash while some of the revenue is not received immediately. In order to estimate the revenue obtained from the business, the entrepreneur must include all the income obtained from the normal business operations.

In this case, the revenue comes from the sale of goods and services. In the case of the business venture, the revenue will basically be the total sales for the period under consideration. The major focus in this regard is to ensure that all the income generated within the operations of the business is included. In the estimation of the expenses realized by the business, all outflows of money from the business must be taken into account. In this case, it is the outflow of cash or other valuable assets from the business venture.

Business expenses will therefore include utilities, salaries and interest expenses for loans. In the same way, the entrepreneur should include other non-cash expenses like depreciation. In this regard, the expenditures of the business will comprise of operational expenses, financing expenses and capital expense. More importantly, it should be realized that not all expenditures in the business amount to expenses. Some capital expenditure is subject to depreciation which is not really an expense.

The cash flow statement will therefore show all the revenue and expenses of the business as realized in the period (Longenecker, 2007). ReferencesLongenecker, J. G. (2007). Small business management: launching and managing new ventures (3rd Canadian ed.). Toronto: Thomson Nelson.