As a general rule, business owners mistakenly believe that following their gut when making financial decisions is enough. However, to be able to make smart and informed decisions, according to every experienced accountant, data is crucial. Therefore, as financial reporting is one of the key elements of running a successful business, ensure you consider the information when making financial goals and decisions.
That said, Syndeo Group – the go-to accounting firm in Brisbane offering utmost financial assistance services – has decided to help you understand everything needed about financial reporting. Just continue reading to find out more.
What is Financial Reporting?
The most objective way to check the financial health of your business is financial reporting as it provides data on revenue, profits, expenses, cash flow, and finance balance, using income statements, cash flow statements, and balance sheets. And preferably, financial reports should be completed quarterly or annually.
Why is Financial Reporting Important?
Briefly put, finance experts say that financial reports provide owners deep insight into the financial condition of their companies as well as allow them to make smart decisions that yield positive results. The company’s CFO uses the data to work out the breakeven point, debt financing, and cash collections, which help in setting realistic and objective goals for the business.
But, that’s not all! Financial reports also provide valuable information to investors about the financial health of the company they are thinking about investing in. And, what’s probably most important, according to certain laws and accounting practices, such as paying taxes, businesses have to keep financial reports.
Top Three Financial Reports
Professional accountant firms advise that to meet the requirements of standard financial accounting practices, a business has to run three common financial reports including:
- Balance Sheet
Firstly, the balance sheet offers a look into the assets, liabilities, and equity of the company on a certain date. Assets are all of the resources used for generating profits and revenue. Liabilities refer to the loans owed to third parties. Equity is the difference between assets and liabilities. The formula used for the balance sheet is “assets – liabilities = equity”.
- Income Statement
Secondly, your company must run an income statement, also referred to as a profit and loss statement, which logically shows the revenue and expenses of the company for a specific accounting period. The formula used here is “revenue – expenses = net income”.
- Cash Flow Statement
Finally, the cash flow statement provides an insight into both the cash inflows and outflows of the company for a specific time frame. But, they are separated into three segments: financing, investing, and operating activities. The formula used in the cash flow statement is “beginning cash balance + net changes in each activity (financing, investing, and operating) = ending cash balance”.
The bottom line, financial reporting is essential if you want to run a successful business and grow your company. To ensure you avoid any mistakes, seek professional financial assistance from the ultimate Brisbane accounting firm – Syndeo Group.