The foundations of management accounts
Understanding the three core financial statements is essential for anyone involved in running or analysing a business: the Profit & Loss (P&L) Statement, the Balance Sheet and the Cash Flow Statement. Each tells a different part of your organisation's financial story.
1. Profit & Loss Stement (P&L)
Also known as the Income Statement, this shows your business's performance over a specific period. It measures revenue, expenses and ultimately, net profit or loss. In short, it answers the question: Are we making money?
2. Balance Sheet
The balance sheet provides a snapshot of your company's financial position at a single point in time. It lists assets, liabilities, and equity—summarising what the business owns versus what it owes. It answers: What is the business worth right now?
3. Cash Flow Statement
While the P&L tracks profits, the cash flow statement shows the actual movement of money in and out of the business. It highlights operating, investing and financing cash flows, answering: Do we have enough liquidity to meet our day-to-day obligations?
Key Differences
- Timeframe:
P&L and Cash Flow cover a period; the Balance Sheet is a snapshot
- Focus:
P&L measures profitability, Balance Sheet shows net worth, Cash Flow tracks liquidity.
- Purpose:
Together, they provide a complete picture—profitability does not always mean cash is available, and net worth doesn't guarantee positive cash flow.
Mastering these statements allows business leaders and stakeholders to make smarter decisions, manage risk and plan for sustainable growth.
How often do you review all three statements together when assessing your organisation's financial health?