“If you can’t explain it to a six year old, you don’t understand it yourself.” -Albert Einstein
Welcome to the world of accounting! Today we’re getting back to basics with one of the most foundational components of financial management: financial statements.
For experienced accountants, financial statements are likely as familiar as the back of your hand. But could you explain what a financial statement is to a child? Or how about what a financial statement audit is?
We’ve answered these two questions below, and hope that this helps to get the conversation started at your home to inspire the next generation of accountants!
What is a Financial Statement?
Think of a financial statement as a report card for adults. A report card shows how well you’re doing in different subjects, such as science or math. A financial statement provides people with a report card for how well a company is doing at managing it’s money. It’s a way to keep track of how much money your company makes, and make sure you’re not spending more than you make. Financial statements help people understand how money is being used and allow them to make better decisions about how to use their money in the future.
What is a Financial Statement Audit?
Occasionally, it’s necessary to conduct a financial statement audit. An audit is like a teacher checking your math homework. The teacher is looking to make sure you did the work correctly and that everything adds up. Financial statement audits work the same way. They’re a way to make sure that all of the numbers and information a company is reporting are correct and accurate. In other words, it’s a way to make sure that a company’s financial statement is telling the truth.
We hope this brief introduction to financial statements has inspired you to sharpen your basic knowledge of accounting, and to inspire future accountants as well. Check out our guide on How to Conduct a Trash Audit for a hands-on way to teach the whole family about audit.
Good luck and happy accounting!