An accounting report is a financial report that shows a company’s historical and current financial situation. Accounting reports are used by different stakeholders in the business, for example, customers to know the performance of a particular organization, suppliers to understand whether the organization is in capacity to pay them for goods and services provided, and government for regulation, e.g., tax purposes.
Basic Accounting Reports
Management of the company also uses information and reports to assess the company’s going concerns and enable them to make short-term and long-term decisions.
Accounting reports include:
- Budget report
- Cash flow statement
- Profit and loss statement
- Balance sheet statement
The budget Report shows the projected reports of the future planning of an organization. It helps track expenditures and how to meet them. It gives a guideline on how to achieve projected income. A budget report also enhances the acquisition assets and makes investment decisions for growth and expansion.
The budget report has the following advantages:
- It helps to identify the viability or weaknesses of a future project.
- It provides information regarding the liquidity position of an organization through the cash budget.
- It gives information that helps the management know whether the company is a going concern
For example, in a scenario where the company has litigation going on, and if the company loses the case to the complainant, It will result in the payment of a considerable amount to the complainant. In most cases, a company is forced to dispose of its assets to settle the case. The settlement is critical since it may be necessary to safeguard the company’s image. Asset disposal will therefore bring a question of going concern to the company.
Cash Flow Statement
A cash flow statement is a financial statement that shows the cash inflows and cash outflows.
Cash inflows are gains, for example, from external financing or investing activities while cash outflows pay for trading activities.
Elements of the Cash Flow Statement include:
- Cash flow from operating activities
- Cash flow from investing activities
- Cash flow from financing activities
Advantages of Cash Flow Statement:
- Assessment of variations in net assets of a firm. It involves liquidity and stability, the capability to influence the amounts and timings of cash flows.
- An evaluation of the capability of a firm to produce cash and cash equivalents.
- Gives insights and an understanding of the status of a company’s operations. It shows the sources of money, and the same is efficiently utilized.
Profit & Loss Statement (P&L Statement)
Profit and Loss Account is a type of financial statement which presents the breakdown and the outcome of business activities during an accounting period. It shows the different revenue generation streams as well as expenditures. Expenditures include direct and indirect costs incurred to generate revenue.
The importance of income and expense statements include:
- The P&L statement indicates the current levels of revenue generation from several different sources. It gives an accurate picture of whether the company can sustain its operation and also pay back its debt. It enables the organization to know about its primary revenue source and track the company’s expenditures. This helps the company to identify erroneous expenses.
- Assists in optimum decision-making: Analysis and interpretation of the transactions help the business know about the company’s current financial status. With accurate analysis of the information derived from the profit and loss statement, the management can analyze the company’s productivity level at a particular period.
- Critical report for compliance: Income and expenditure statements guide the company on the amount of tax to pay the revenue authority. This is important in statutory compliance.
The Balance Sheet Statement
A balance sheet helps the organization:
- To Evaluate Risk and Return: If current liabilities exceed your cash balance, your business will likely require additional working capital from lenders or investors. A balance sheet can also reveal when debt levels are unsustainable.
- To Secure Loans and Investors: Lending institutions use a statement of financial position to determine creditworthiness. When applying for a loan to finance your business activities, the financial information gives confidence to lenders that you can pay back your debts on time.
- To assess working capital: Working capital is the difference between current assets and current liabilities. The balance sheet determines an organization’s capacity to sustain its business operations. This is informed by sufficient working capital.
Accounting reports are essential for small businesses because they help keep everything organized for taxes and make wiser and more informed decisions, which are helpful in the growth of any organization
Xero, Zoho Books, Kidaftari Accounting System, and Tally ERP is premium accounting soft wares that help an organization generate, customize and track financial reports. A Summary report shows activities in a particular group of accounts for a specific period.
Ronald LLP helps you achieve your organizational goal since we have a team of experts with vast experience in bookkeeping practices such as the preparation of financial reports and statements, reconciliation of cash and bank accounts, maintaining payable and receivables records, managing payrolls, recording all business transactions and filing business returns
Related: Double Taxation Agreements in Kenya