Each month, the individual transactions that you've entered into your records will form the basis of a number of financial statements. Before you create the statements, you'll need to balance your bank accounts with your accounting records to make sure that all of your income and expenses have been recorded properly. An accounting software package will help you accomplish both the account balancing and the financial statement preparation with just a few clicks of the mouse.

Then, you (or the accounting software) will add up your revenue and expenses to create a profit and loss statement. This statement details your income and your expenses by account for a given accounting period. The statement lets you see how you stand not only at the end of that month, but year-to-date as well. You can also compare the current year's figures (monthly, quarterly, and annually) to those of the previous year.

A cash flow statement compares money coming in to money going out. You can look back to get a picture of previous cash flow trends, but — more important — look forward to check your projected cash flow. This helps you to answer the big question: Will I have enough cash to pay my bills when they're due?

A balance sheet, which uses your accounts to compare your business assets to your business liabilities and investment may also be useful. Essentially, the balance statement lets you know how much your business is worth.