There are three financial reports that will give you insight into the past, present, and future of your business’s financial state. An accounting reports best practice is to review your business’s financial data weekly in order to run your company effectively, better analyze operations, and to guide your business decisions.
Of all the financial reports your accounting software generates, below are the three essential reports business owners should regularly review to better understand their company’s performance.
1. The Balance Sheet
The Balance Sheet is a financial statement that summarizes your company’s total assets (intangible, non-current and current assets), your liabilities (i.e., your financial obligations), and the shareholders’ equity (retained earnings and investments) at a point in time. This statement usually is shown at the end of an accounting period. The balance sheet offers a snapshot of your business’s financial position, including the economic resources that the company owes and owns and the sources for financing those.
You should use your Balance Sheet to identify trends and make better informed financial decisions. The Balance Sheet is also important to lenders who will use it to determine your business’s creditworthiness.
2. The Income Statement
The Income Statement is arguably one of the most important aspects of accounting reports best practices. It’s sometimes referred to as the Profit and Loss Statement, Statement of Income, or Statement of Operations. Your Income Statement is a summary of the total revenues and expenses your business has incurred and shows profitability over a specified period of time.
Both internal and external stakeholders use the Income Statement to evaluate your company’s profitability and to assess the level of risk for a creditor or investor. If you want a valuable and viable company, your revenue needs to exceed your expenses.
3. The Cash Flow Statement
This report summarizes all cash inflows and outflows of your business over a period of time. The Cash Flow Statement is different from the Income Statement and Balance Sheet because it only accounts for cash activity and does not take into account non-cash activity, including depreciation, credit purchases, or sales.
Your Cash Flow Statement will usually be presented in three sections: investing, financing, and operating activities. It will depict which areas of your company are using and generating the most cash. Use your Cash Flow Statement to estimate future cash flow, which will in turn assist with decision making and all-important budgeting.
Accounting Reports Best Practices: Make Time to Run These Statements Weekly
The Balance Sheet, Income Statement, and Cash Flow Statement together make up your standard financial statement package. Your accounting software should be set up to generate these statements on a weekly basis and you should be sitting down to review them at least once a week. These reports can, and certainly should, be used as your business’s key performance indicators.
If you want to learn more about how your company will benefit from the use of integrated accounting software, feel free to contact the team at Cougar Mountain Software. They can provide information about solutions for small business accounting software and can guide you through selection, installation, and training.
Call (800) 388-3038 to speak with a business and accounting expert.