A financial report provides insight into where money is coming from and where it’s going so stakeholders can make informed decisions. It’s a roadmap that guides investment, financing and operations. Accurate and timely reporting also helps you meet regulatory requirements, stay compliant, and attract investors, lenders, suppliers and customers.
Financial reports include several different types of statements, such as the income statement, cash flow statement and balance sheet. The income statement (also known as the profit and loss statement) lists revenues and expenses, including cost of goods sold, salaries and operating costs. It calculates gross profit and net income, based on accrual accounting. It also includes the company’s net equity, which is its initial investments plus accumulated earnings.
The cash flow statement, on the other hand, calculates a business’s operating cash flows – including cash from sales, investing activities, capital cash inflow and outflow. It also displays a company’s net cash position and compares it to its current liabilities.
Lastly, the balance sheet is a snapshot of a business at a given point in time. It includes the beginning and ending accounts balances, as well as the total assets, liabilities and shareholders’ equity. It calculates a company’s overall financial health and compares it to previous reports to spot trends and growth opportunities.
To create a financial report, collect all of your business’s relevant information. This can include sales invoices, purchase orders, bank statements, expense receipts and payroll records. Next, determine the length of your reporting period – monthly, quarterly or annually – and choose an accounting framework such as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). Finally, check all calculations, data and information for accuracy. Have someone else review your report to catch any mistakes before distributing it.