Navigating Financial Reporting: Understanding the Essentials

Financial reporting is crucial for businesses of all sizes in understanding their financial health. Even if you’re the sole employee, generating financial reports helps you stay on top of your goals and can expedite your growth. 

Financial reporting are standard accounting reports that offer detail into how much money a business has, where the money is coming from and how it’s being spent over a fixed amount of time, such as quarterly or annually. 

Why Financial Reporting Matters

By interpreting and analyzing financial reports, managers can assess a business’s performance in real time, make informed decisions about the business and support everything from tax filings to compliance with financial regulations.

Financial reports help you avoid being caught by surprise. They provide credible documentation for regulators, banks, potential investors and other external stakeholders. 

3 Key Financial Reports You Need to Know

The income statement, also called a profit and loss statement, shows all revenue, expenses, gains and losses during a specific period of time. It starts with revenues and calculates the amount of money a business earned or lost during the period by listing and subtracting expenses and then taxes paid.

The term “bottom line” comes from the last line of the income statement, which calculates profit — the net income — for the business for that period. 

The balance sheet shows assets and liabilities and calculates the difference between the two, which is your equity. Overall, it illustrates how well a business can meet its financial obligations at a given point in time. 

It’s called a balance sheet because the two sides of the equation — assets = liabilities + equity — must balance. Balance sheets are used to determine the book value, or net worth, of a business.

The cash flow statement does exactly what it sounds like. It shows cash moving in and out of the business during a determined time period. This documents liquidity — how well a business can pay bills and fund future growth. 

Cash flow is the movement of money and is different than profit, which is what remains after business expenses are subtracted from revenues. It’s useful for managing budgets and assessing business performance. 

Stay on Top of Financial Reporting Standards with Neely’s

Financial reporting requirements do change often, and the team at Neely’s can keep your business ahead of the changes and trends with our expert outsourced accounting or bookkeeping services. Reach out to us today to get started on the best accounting solution for you.

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