Seven Secrets to Money Success - Number 2.

Financial Statements are not made to be easily understood.
No one ever went to an accountant because they WANTED to. They normally go because they HAVE to. In the same way, no one ever asked an accountant onto the management team of a company because they WANTED to. They realised that the HAD to have someone to ‘look after the books.’ As a result of this, the accounting profession has been able to happily survive without having to truly explain what they are up to at any point. Think about the businessperson that goes to the accountant and asks “Did I have a good year?” This shows that they might have a great ‘gut feel’ for the business but could be held to ransom by their accountant because only he understands the ins and outs of the financial statements.
The same goes for financial planners who ‘look after the numbers’ for their clients and help them build a better future.
Financial Statements have often been presented in a way that the normal person can not really understand. They understand the income and expenses but beyond that, everything is a mystery. The key to financial statements is to understand the difference between a balance sheet and a net income statement. One statement shows a point in time (balance sheet) and the other shows activity for a period (net income statement). This fact is often not told to people and they look at both statements as if they were the same. When they don’t understand the balance sheet they ignore it. Remember that the balance sheet is what you’ve got left after taking into account you net income statement for a period of time. If you have nothing left, you have consumed all your income and you’ll end up working for money instead of having money work for you.

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