To understand the financial health of your business, it’s critical that you keep accurate records. Having solid, easy-to-understand accounting reports when you need them is a good step toward ensuring you always know the current financial state of your business. The best accounting software generates dozens of reports, so it is important to know which ones you should be paying close attention to.
Accounting reports are statements that show the financial health of a business. Some reports show the results of a company’s operations over time; others reveal a snapshot of a company’s financial condition at a particular moment.
Common examples of accounting reports include balance sheets, statements of free cash flow, profit and loss statements, and statements of owner equity. There are also consolidated earnings statements (for companies that have multiple departments or divisions), as well as more specialized reports such as accounts payable aging. But all of these reports have the same goal: to reflect the current financial state of a business.
These accounting reports are prepared regularly by a company’s senior management to guide company strategy and facilitate decision-making. Reports prepared according to generally accepted accounting standards can also be presented to shareholders, lenders or insurers for various purposes.
These reports are not normally used in tax filings, but when used appropriately, they can certainly help small business owners understand their potential tax liability at any particular point in time.
For most of us, when we think of accounting reports, we immediately think of taxes. And, sure, taxes are always a consideration when reviewing a company’s financials. But accounting reports are much more impactful and much more commonly used for other purposes. Most notably, these reports are used by management within a company to get insight into what’s happening in the various segments of a business and make decisions about its operation — how to generate revenue and grow profits.
Some other situations where accounting reports are especially significant include:
For larger companies, accounting reports are also important for presenting the company’s financial condition to shareholders so they know what’s happening within the company. These reports provide key insights into the financial status of a company and the results of its recent operations.
There are many different types of accounting reports that reflect various aspects of a company’s financial status. However, there are four or five core types of accounting reports that are used by most small businesses. All of these are available with most small business accounting software packages.
While multiple types of accounting reports are available, three important reports to pay attention to are the balance sheet, a profit and loss statement, and a statement of free cash flow.
In addition to these core reports, there are many others, and many more permutations of each, adjusted to meet the circumstances of individual businesses and the preferences of their owners and managers.
Lots of executives create custom reports as well. These versions may focus on the areas of the business that management wants to track most closely, or compare recent results with those from the same time period last year.
The process of preparing an accounting report generally depends on the report, the size and scope of the business, the amount of detail you want to include in the report, and the time periods being compared. Generally, the process involves totaling certain accounts for a set period of time.
Modern accounting software can generate most accounting reports automatically, so the process for creating them varies only based on the accounting software you use. Here are some popular reports and what they entail:
This process can be repeated for other reports you wish to generate. What’s more, most accounting software usually offers the option to customize reports — to select dates and to decide which accounts to include/exclude — to generate the most insightful reports for company management.
Accounting reports are predominantly used by a business’s senior managers to assess financial situations and measure results. Even more importantly, the insights gleaned from various reports are used to make decisions about a company’s general strategy.
For example, a P&L statement can be used to compare operating results with previous periods to see which parts of a business are growing or shrinking. A balance sheet shows how liquid a company is — how much cash is available for investment in expanding business. Reviewing these statements can help managers determine where and how to invest company resources to cut costs and maximize revenue.
Managers aren’t the only ones looking at accounting reports. Here are a few examples of who else looks at financial statements and why:
These are a few of the hypothetical situations that illustrate why it’s important to be able to customize financial reports. They help you provide better insights for the shareholders, lenders, accountants and others who may review them.
In addition to helping set strategy, accounting reports can be used for tax, lending and insurance purposes.
Thankfully, accounting reports of all types can be easily generated using most off-the-shelf accounting software packages, and these reports can be updated continuously to provide up-to-the-minute (though unaudited) insights on what is happening in your business and the financial standing of the company.
If you’re going to invest in accounting software to help track your company’s finances, you should be sure it is capable of generating these reports easily. Some common options you should check for include:
These features will give you tremendous flexibility to dissect your company’s financials and make the most informed decisions about the management of your small business.
Among our picks for the best accounting software, we recommend the below platforms for reporting:
Accounting reports are a must for proper business financial management, and accounting software entirely handles the labor involved in creating them. No more tedious number-crunching and data organizing — in just a few clicks, you’ll get all the information you need. Acting on your financial picture and sharing key numbers with your biggest stakeholders can truly be that easy.