UNDERSTANDING FINANCIAL STATEMENTS

​Here’s a sample one:

The next part is:

The Profit & Loss Statement

Also called the Statement of Financial Performance, or just the P&L. This shows income coming in — sales, rent, interest — alongside your expenses for the period. If you buy and sell products, you’ll also see cost of sales entries here.

 

Another key part is the:

The Statement of Movements in Equity

Equity is how much genuine value there is in the company. Say the company owns a house worth $300,000, with $100,000 still owed on it. The equity is the $200,000 difference. As debt reduces, or the asset’s value grows, equity increases. That’s the whole concept.

Schedule of Depreciation

Purchase something over $1,000 (excluding GST), and you generally can’t claim the full cost immediately — you claim it over the asset’s useful life instead. The rate varies significantly by asset type. Check IRD’s depreciation rate finder(opens in new tab) for the exact current rate for a specific asset, since rates differ meaningfully between categories and it’s not worth guessing. The Schedule of Depreciation lays all of this out in one place.

Schedule of Loans

This shows what’s owed, to whom, interest paid, and similar detail for any loans the business holds.

Shareholders’ Current Account

When you put money into the company from your own pocket, it credits this account. When you take money out, it debits it. This is different from reimbursing yourself for something you bought for the company with your own money. That’s a separate transaction entirely, not part of this account.

At year end, the ins and outs get totalled. Take out more than you put in, and it generally needs repaying to the company. Otherwise it gets taxed in some way. If your company is an LTC, this works a little differently. An overdrawn shareholders’ current account isn’t subject to FBT, though interest still needs to be charged to the shareholder.

Compilation Report

This page discloses the scope of the financial statements, outlines your responsibilities as a director, and typically includes the accountant’s relationship disclosure and disclaimer of liability.

Accountant’s Disclaimer

This is where the accountant reminds you that responsibility ultimately sits with you, as director. Your accountant has done their best to present an accurate picture based on the information you provided and their understanding of tax law. But it’s on you to check the statements, understand them, and be genuinely comfortable before signing, since you’re the one legally accountable once you do. See your obligations as a company director for more on what that actually involves.

Notes

These pages cover accounting policies and additional detail that isn’t in the main body of the statements. Worth reading — there’s often genuinely useful information here you’d otherwise miss.

Minutes

These relate to your company’s annual meeting, required under the Companies Act 1993(opens in new tab).

Common Questions

Do I need to understand every page of my financial statements? Not in technical depth, but you should understand what each section broadly tells you, since you’re legally responsible for what you sign.

What if I don’t understand something in my statements? Ask. That’s exactly what your accountant is there for. It’s a much better use of a conversation than signing something you’re not confident about.

Why does my shareholders’ current account matter? Because an overdrawn balance at year end generally needs to be repaid or taxed. It’s not simply “your” money to draw down freely, even though it feels that way.

Is the $1,000 depreciation threshold still current? Yes. Assets costing $1,000 or less (excluding GST) can still be claimed in full immediately, and this has been the standing threshold for several years now, not a temporary measure.

Summary

Financial statements look intimidating mainly because the terminology is unfamiliar, not because the underlying concepts are genuinely complex. The balance sheet shows a snapshot of what you own and owe. The P&L shows performance over a period. Equity is simply value minus debt, and the supporting schedules and notes fill in the detail behind those headline numbers. Understanding the shape of each section — even without mastering every technical detail — puts you in a much stronger position. You can actually engage with your own numbers, rather than just signing where indicated.

Talk to EpsomTax.com If You’d Like a Walkthrough

If you’re looking at a set of financial statements and something doesn’t quite make sense, that’s a completely normal place to be. Contact us and we’re happy to walk through yours with you. For more detail on specific questions, see our common questions about financial statements. If you’re curious about how the reporting requirements themselves work, see changes to financial reporting requirements for SMEs.

​Here’s a sample one:

 

The next part is:

The Profit & Loss Statement

Also called the Statement of Financial Performance, or just the P&L. This shows income coming in — sales, rent, interest — alongside your expenses for the period. If you buy and sell products, you’ll also see cost of sales entries here.

 

Another key part is the:

The Statement of Movements in Equity

Equity is how much genuine value there is in the company. Say the company owns a house worth $300,000, with $100,000 still owed on it. The equity is the $200,000 difference. As debt reduces, or the asset’s value grows, equity increases. That’s the whole concept.

Schedule of Depreciation

Purchase something over $1,000 (excluding GST), and you generally can’t claim the full cost immediately — you claim it over the asset’s useful life instead. The rate varies significantly by asset type. Check IRD’s depreciation rate finder(opens in new tab) for the exact current rate for a specific asset, since rates differ meaningfully between categories and it’s not worth guessing. The Schedule of Depreciation lays all of this out in one place.

Schedule of Loans

This shows what’s owed, to whom, interest paid, and similar detail for any loans the business holds.

Shareholders’ Current Account

When you put money into the company from your own pocket, it credits this account. When you take money out, it debits it. This is different from reimbursing yourself for something you bought for the company with your own money. That’s a separate transaction entirely, not part of this account.

At year end, the ins and outs get totalled. Take out more than you put in, and it generally needs repaying to the company. Otherwise it gets taxed in some way. If your company is an LTC, this works a little differently. An overdrawn shareholders’ current account isn’t subject to FBT, though interest still needs to be charged to the shareholder.

Compilation Report

This page discloses the scope of the financial statements, outlines your responsibilities as a director, and typically includes the accountant’s relationship disclosure and disclaimer of liability.

Accountant’s Disclaimer

This is where the accountant reminds you that responsibility ultimately sits with you, as director. Your accountant has done their best to present an accurate picture based on the information you provided and their understanding of tax law. But it’s on you to check the statements, understand them, and be genuinely comfortable before signing, since you’re the one legally accountable once you do. See your obligations as a company director for more on what that actually involves.

Notes

These pages cover accounting policies and additional detail that isn’t in the main body of the statements. Worth reading — there’s often genuinely useful information here you’d otherwise miss.

Minutes

These relate to your company’s annual meeting, required under the Companies Act 1993(opens in new tab).

Common Questions

Do I need to understand every page of my financial statements? Not in technical depth, but you should understand what each section broadly tells you, since you’re legally responsible for what you sign.

What if I don’t understand something in my statements? Ask. That’s exactly what your accountant is there for. It’s a much better use of a conversation than signing something you’re not confident about.

Why does my shareholders’ current account matter? Because an overdrawn balance at year end generally needs to be repaid or taxed. It’s not simply “your” money to draw down freely, even though it feels that way.

Is the $1,000 depreciation threshold still current? Yes. Assets costing $1,000 or less (excluding GST) can still be claimed in full immediately, and this has been the standing threshold for several years now, not a temporary measure.

Summary

Financial statements look intimidating mainly because the terminology is unfamiliar, not because the underlying concepts are genuinely complex. The balance sheet shows a snapshot of what you own and owe. The P&L shows performance over a period. Equity is simply value minus debt, and the supporting schedules and notes fill in the detail behind those headline numbers. Understanding the shape of each section — even without mastering every technical detail — puts you in a much stronger position. You can actually engage with your own numbers, rather than just signing where indicated.

Talk to EpsomTax.com If You’d Like a Walkthrough

If you’re looking at a set of financial statements and something doesn’t quite make sense, that’s a completely normal place to be. Contact us and we’re happy to walk through yours with you. For more detail on specific questions, see our common questions about financial statements. If you’re curious about how the reporting requirements themselves work, see changes to financial reporting requirements for SMEs.