Financial reporting can provide a company with a variety of important information about how a company is doing. It is the process of producing statements that disclose an organization’s financial status to management, investors and the government. Financial reporting is a vital tool used by management, shareholders, and bookkeepers to learn about how a company is doing financially. The three basic types of reports are balance sheets, income statements, cash flow statements and statements of shareholders’ equity. While small and medium sized businesses are unlikely to have publicly traded stock shares, financial reporting is still an important part of business.
Firstly, we will go over the balance sheet. A balance sheet can essentially take a snapshot of the current financial health of a business at a given point in time. The assets section can list the amount of cash on hand, the money in bank accounts, the money owed to the company (accounts receivable). Liabilities list everything your business owes, such as the outstanding principle on loans, unpaid paychecks, and unpaid bills. The most important piece of info that a balance sheet provides you is the net worth of the company. This can be important to know if, as a business owner you ever intend on selling the company, or for tax reasons need to know the net worth of your company.
Cash flow statement
The next example of financial reporting to pay attention to is a cash flow statement. A cash flow statement is a financial report that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing and financing activities. A cash flow statement is important because it will show if a business is running out of money, if owners are moving too much money out of a business, and it can make clear how much money was used to purchase property and equipment.
Another example of financial reporting to discuss is the income statement. An income statement is a a financial statement that reports a company’s financial performance over a specific accounting period. It mainly shows the revenues and expenses through both operating, and non operating costs. An income statement is significant because it is used heavily by analysts, investors, and lenders to assess the financial health of a business. It is important to have a business’ income statement in good appearance because if a lender sees something they do not like on an income statement, a business may not receive the loan they need in order to grow.
Financial reporting is significant to publicly traded companies. This much is already known. It affects stock prices, shareholders opinions, and a variety of other things. Financial reporting is also important to small to medium sized businesses because it can show the health of a company. The perceived health of a company can affect employee morale, loan rates, and a variety of other issues which are important to a small business. Make sure your business’ financial reporting is in good shape with Good Bookkeepers on Call.