In the previous article, we talked about accounting as a system of recording, classifying, and summarizing. So what are those numbers ultimately compiled into?

The answer: 3 financial statements.

Before listing dry definitions, let me tell you the story of Minh — an online cosmetics shop owner. Through Minh’s business journey, we’ll better understand why each stage of growth requires an additional “lens” to look at the business.

That question was exactly the moment Minh needed his first financial statement.

“Did I make a profit or a loss this month?” – The first question (and primary concern) of every business owner.

Minh’s Story: The Startup Phase

Minh sells cosmetics on Shopee. In his first month, the Shopee dashboard shows:

Revenue: 200 orders x 250,000đ = 50 millions.

Minh thinks: “50 million! Amazing!” But wait. Revenue is not the money you actually earn. Revenue is the total amount customers pay before subtracting anything.

To know whether Minh truly made a profit or a loss, we need to do a simple calculation:

50 millions VND in revenue, but only 1.5 millions VND in net profit - just 3%.

Minh thought he was making money, but in reality, he was almost working “for free.” Without a P&L report, Minh would continue being “busy but broke” without knowing why.

Core P&L Formula

Revenue – Cost of Goods Sold = Gross Profit – Expenses = Net Profit

What question does the P&L answer?

Within a given period (month/quarter/year), how much revenue did your business generate, how much did it spend, and ultimately how much profit or loss did it make? The P&L is like a final report card at the end of a term: it tells you whether you performed well or poorly. But it does not tell you how much cash you actually have in your wallet.

Warning: If you sell on multiple platforms (Shopee + TikTok Shop + Lazada), each platform has a different fee structure. A P&L by channel will show you which channel is truly worth investing in — not just which one “generates the most sales.”

“What do I own and who do I owe?” – When the business becomes more complex

Minh’s story: The growth stage

6 months later, Minh’s shop has grown fivefold. Now Minh has:

•       Inventory worth 300 millions VND (imported from Korea, sitting in the warehouse)

•       80 millions VND held by Shopee/TikTok pending payout

•       A 200 million VND bank loan to finance inventory

•       150 millions VND payable to Korean suppliers

•       A small delivery truck purchased for 180 millions VND

Now, if he only looks at the P&L, Minh sees “This month’s profit: 25 million VND.” Great! But he still feels uneasy: “I owe too much. I’m holding too much inventory. What if the next sales season doesn’t go well?”

The P&L cannot answer those questions. The Balance Sheet (BS) can.

What does a Balance Sheet look like?

A BS is divided into two sides, and they always balance:

Formula

Assets = Liabilities + Equity

This equation is always true. It is the core principle of double-entry accounting that we discussed in the previous article. Everything a business owns (assets) must come from somewhere: either borrowed (liabilities) or invested by the owner (equity).

If the P&L is a “report card,” then the Balance Sheet is an “X-ray snapshot” at a specific point in time. It tells you whether the business is financially healthy or not — not how much profit you made this period, but what you own, what you owe, and what truly belongs to you.

What question does the BS answer?

At a specific point in time (end of month, quarter, or year): what does the business own? How much does it owe, and to whom? And what portion truly belongs to the owner?

Warning: Many shop owners “value” their business based on revenue: “My shop generates 1 billion VND per month!” But investors and banks look at the Balance Sheet: How many assets are there? How much debt? How much equity? That is the true value of the business.

“Where did the money go?” – The truth no one can hide

Minh’s story: The “profitable but broke” stage

At the end of the year, Minh reviews his business results:

150 million VND in net profit, but only 8 million VND left in the bank. Where did the money go?

This is the moment Minh needs the third financial statement: the Cash Flow Statement (CF).

And here is the cash flow report that reveals the truth:

Now Minh understands: although the P&L shows 150 million VND in profit, cash was tied up in increased inventory (180 million) and unpaid platform receivables (50 million). The core business operations did not generate surplus cash. Most of the additional cash during the year came from bank loans and additional personal capital. On top of that, cash was spent on a truck and computers, leaving little cash at year-end.

If the P&L is a “report card” and the Balance Sheet is an “X-ray snapshot,” then the Cash Flow Statement is a “24/7 surveillance camera” — it records every dollar in and out exactly as it happens. The P&L can be “beautified” by accounting policies. The Balance Sheet can be “arranged.” But cash flow cannot lie: cash in or cash out is undeniable reality.

What question does the CF answer?

During this period, where did the cash actually come from, and where did it go? Can the business sustain itself? Or is it surviving on debt and additional capital injections?

3 cash flows – 3 critical questions

The same business, the same reporting period - yet each statement gives you a different perspective:

The Growth Journey: Small → Medium → Large Business

Stage 1 - Just Starting Out: You may only need to look at the P&L. Knowing whether you’re making a profit or a loss is enough.

Stage 2 – Growing in Complexity: Once you have inventory, assets, or debt, you also need the BS. You must understand what you own and what you owe.

Stage 3 – Getting Serious: At a larger scale—with multiple channels and products—you need the Cash Flow statement. This is when you see the real picture: is the business surviving on operations, or surviving on borrowed money? Cash flow is the truth that even the most “creative” expert cannot hide.

If you only have 5 minutes, look at these 5 numbers:

1. Each stage requires a different “lens.” When you’re small, focus on the P&L. As you grow, add the Balance Sheet. When you get serious, you need Cash Flow. Don’t try to master all three at once - start with the P&L.

2. The three statements tell three different stories. Reading only one is like hearing only one side of a debate. To understand the full truth, you need all three.

3. Cash Flow is the “ultimate truth.” The P&L can be polished, the Balance Sheet can be arranged—but cash doesn’t lie. When in doubt, look at the Cash Flow statement.

The next article: The Balance Sheet Approach – Seeing a Business Through an Auditor’s Eyes

Accounting • Tax Advisory • Finance for E-commerce & SMEs