Let’s imagine that our Lemonade Stand business grows into a nationwide company with professionally made lemonade stands offering fresh lemonade and snacks in theme parks and at sport events all over the country. You have a corporate office, a leadership team and, of course, your HR team. Let’s take a look at your financial statements and try to interpret them.

This is an example of more typical financial statements.Now that we know what goes into key sections on the financial statements we can explain that. Let’s try.

Sales. This is what we sold in a form of our products: lemonade and other beverages.

Cost of Goods Sold. It includes cost of raw materials and supplies and labor that we incurred to make the lemonade and beverages we sold.

Expenses. Very often the main category of expenses is S, G and A. It stands for Selling, General and Administrative Expenses. These expenses include all of the administrative staff, office supplies, phone and utilities, marketing and advertising and other similar expenses.

Cash. Most often it represents a bank account balance. It reflects a balance in the bank at the end of the specified period and it is comprised off cash ins and outs of all cash involving transactions.

Accounts Receivable. This account shows the amount customers owe us at the end of the specified period. It is comprised off what we sold on credit and customer payments that we received.

Inventory. It is the balance of value of raw materials, supplies and finished goods inventory. It is comprised of purchases of supplies and raw materials, any work in progress (unfinished goods that are not ready for sale), balance of finished goods that is ready to be sold) and what we actually sold.

Accounts Payable. This number shows the balance we owe to our vendors or suppliers. It is comprised of what we purchased without payment at the time of purchase and what we actually paid back to the vendors.

Retained Earnings represent accumulated net income since the inception of the business.

We do not need to memorize finance, if we apply understanding of how our business works, we will be able to interpret key sections of the financial statement and key financial metrics.

Here I invite you to pause, think and write down what is reflected under key sections of the Income Statement in your organization. You can refer to the work you did in the very beginning of this course where you identified what your organization sells, who your customers are, what you need to have in place to sell what you sell and who your suppliers are.

Please take a moment to think and write down what goes under each section of the income statement in your organization.