Operating Statement for Dummies

Operating Statement is a term that might sound a little bit confusing, especially if you haven't come across it before. But don't worry, I'm here to help you understand it in the easiest way possible!

So, think of an operating statement as a report or a summary that tells us about the financial health of a business or an organization. It gives us a detailed breakdown of all the revenues (which are the money coming in) and expenses (which are the money going out) that the business or organization has during a specific period of time. This period of time can be a month, a quarter, or a year, depending on how often the business or organization chooses to create an operating statement.

The operating statement shows us the overall picture of how well a business is doing financially. It helps us understand if the business is making a profit or facing a loss. To make it even simpler, you can think of the operating statement as a "financial health report card" of a business!

Now, let's break down the different parts of an operating statement. One important thing you'll find in the operating statement is the revenue. Revenue is all the money that a business earns from its activities. For example, if a bakery sells 100 cupcakes for $2 each, then the revenue from cupcake sales is $200. Revenue can come from many different sources, like selling products, providing services, or even renting out spaces.

But as we know, running a business also comes with expenses. Expenses include things like buying supplies, paying employees, renting a space, or even paying for utilities like electricity and water. The operating statement also includes all these expenses, which are subtracted from the revenue to calculate the final financial result.

Now, here comes an interesting part. If the revenue is bigger than the expenses, then the business is making a profit! This means that the business is doing well, and the operating statement will show a positive number at the end. On the other hand, if the expenses are greater than the revenue, then the business is facing a loss. In this case, the operating statement will show a negative number.

Let me give you a fun example using an analogy. Imagine you have a lemonade stand business. Every time you sell a glass of lemonade, you earn some money, right? That money is your revenue. But don't forget that you also need to buy lemons, sugar, cups, and ice to make the lemonade. All these things are your expenses. If at the end of the day, you've sold more lemonade (revenue) than what you spent on buying the ingredients (expenses), then you've made a profit! But if you spent more on ingredients (expenses) than what you earned from selling lemonade (revenue), then you've faced a loss. The operating statement is like a report that tells you whether you made a profit or faced a loss in your lemonade stand business!

To sum it up, an operating statement is a financial report that shows us if a business or organization made a profit or faced a loss during a specific period of time. It includes all the revenues (money coming in) and expenses (money going out) to give us a clear picture of the financial health of the business. So, whenever you come across this term, just think of it as a "financial health report card" that tells us how well a business is doing!