Understanding the Types and Differences of Financial Statements Made Easy | The 3 You'll Encounter in Business, Investing, and Side Hustles [For Side Hustles & Small Businesses] Easy Financial Statement Reading Guide ⑧

As my side hustle grows, will I eventually have to create a "financial statement"?

Have you ever had that thought cross your mind?

Moreover, when you look into it, it seems there are different "types" of financial statements.
Things like the Companies Act, the Financial Instruments and Exchange Act, and tax filing purposes.

Honestly, the moment you find that out, you get a bit defensive, don't you?
"It looks difficult after all," or "It doesn't seem to have anything to do with me."

This article is aimed at company employees who have started a side hustle or a small business.
For those who are wondering, "Will I eventually have to deal with financial statements?"

First, let me tell you the most important thing.

There are different types. But there is only one format.

So, once you learn how to read them, you can use that knowledge for everything—at your company, in investing, and for your side hustle.

🟩 Hearing that "there are different types of financial statements" makes you defensive

When you look up financial statements, these terms come up:

・Financial statements based on the Companies Act
・Financial statements based on the Financial Instruments and Exchange Act
・Financial statements for tax filing purposes

Three of them? And the names are full of kanji and sound stiff.

I think some people have seen this and quietly closed their browser, thinking, "This is a difficult world for me after all."

Honestly, when I first studied this, I was overwhelmed by this "multitude of types."

But after 25 years in this business, I have realized one thing clearly.
The number of types is not a hurdle.

🟩 But the format is the same for all — P/L and B/S

The three financial statements. When you open them up, the main characters that appear are all the same.

・Profit and Loss Statement (P/L) = Statement of earnings
・Balance Sheet (B/S) = List of assets and debts

Whether it's based on the Companies Act or for tax filing, this doesn't change.
The foundation is always these two documents.

In other words, "there are three types" does not mean thatthere are three completely different documents.

They are just the same P/L and B/S, slightly dressed up to suit the purpose.
Doesn't that make you feel much more at ease?

🟩 You have already encountered financial statements in 3 situations

① Financial statements seen at work (based on the Companies Act)
Financial statements that a company uses to show shareholders and banks that it is "managing properly."
If you are a company employee, you have opportunities to see these, such as when checking the creditworthiness of a business partner.

② Financial statements seen in investing (based on the Financial Instruments and Exchange Act)
Financial statements that listed companies disclose in detail for investors.
For example—when choosing high-dividend stocksthis is what you look at.
These are the numbers used to check, "Does this company have the strength to keep paying dividends?"

③ Financial statements you create for a side hustle (for tax filing)
When your side hustle grows and it's time to file your tax return.
The financial statements you submit for a blue-form tax return (to receive the 650,000 yen deduction) are those that include both a P/L and a B/S.

Seeing them at work, seeing them for investing, and creating them for a side hustle.
Even though the situations are different, the format that appears is the same.

🟩 The only difference is "who it is for and what rules it was made under"

So, what is different among the three types?

Roughly speaking, it is just"who you show it to" and "what rules you use to make it".

▼ Seen at work = Based on the Companies Act
　→ Things shown to shareholders and banks

▼ Seen in investing = Based on the Financial Instruments and Exchange Act
　→ Things shown to investors (disclosure is the most detailed)

▼ Created for a side hustle = For tax filing
　→ Things shown to the tax office (to calculate taxes)

The format (P/L and B/S) is common.
Because the recipient and the rules are different, the level of detail and the way specific numbers are determined change little by little.
That is all there is to it.

🟩 Therefore, if you can read them once, you can read them all

Since there is only one format—
once you learn to read a P/L and B/S,

・When looking at a business partner's financial statements at work
・When looking at the numbers of a company you are interested in for investing
・When creating your own tax return for a side hustle

you can read them all with the same perspective.

There is no need to study again for each type. All you need to learn are the two foundational sheets.

Honestly, I think this is a very "valuable" skill.
Because once you acquire it, you can use it for the rest of your life in various situations.

🟩 Summary | 3 types, 1 format

There are three types of financial statements. But there is only one format: P/L and B/S.

Don't be intimidated when you hear that there are "different types."
It doesn't mean there are three completely different things. It's just the same format, dressed up differently depending on the audience.

So, let's start with the two foundational documents.
If you can read those, you'll be perfectly fine in business, investing, or your side hustle.

Next, why don't we take a peek at the first foundation—the Profit and Loss Statement (P/L)?

Which of the three situations do you think you'll encounter financial statements in first? 🕊

In conclusion

If I had to summarize today's talk in one line, it would be this.

There are three types of financial statements. But there is only one format: P/L and B/S.

To be honest, when I first heard that there were "three types," I made it harder than it needed to be.

Intimidated by the stiff terminology, I feel like I took a long detour before realizing that the "content is the same format" in all of them.

But as long as you can read the foundational P/L and B/S, you'll be fine.
You can read them with the same perspective whether you're at work, investing, or running a side hustle.

You don't have to be intimidated when you hear that there are "different types" anymore.

Which of the three situations do you think you'll encounter financial statements in first?
I would be very happy if you could let me know in the comments.

To the next article

Once you understand that "there is only one format," all that's left is to look at the foundation one sheet at a time.

The first sheet is the profit calculation statement—the Profit and Loss Statement (P/L).

"I have sales, but for some reason, nothing is left in my hands."
Next, we will use the Profit and Loss Statement to organize the true nature of that discomfort.

If this article was helpful, your support and encouragement would mean a lot 🕊

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