Financial reporting is an essential tool for business owners, managers and investors. It helps them understand a company’s profitability, cash flow and debt management. It also provides visibility into a company’s future growth trajectory.
Financial reports must adhere to a set of rules, called accounting standards, which includes Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). They should provide accurate, transparent and comprehensive information to ensure stakeholders’ trust.
The main sections of a financial report include an income statement, a balance sheet, a cash flow statement and a budget. Each statement covers a different aspect of a business’s finances and provides a deeper dive into its performance.
An income statement, sometimes referred to as a profit and loss statement, shows the revenue and expenses of a business over a period, using accrual accounting to match sales with costs. This gives a clear picture of a business’s profitability and can help you identify areas where you can cut costs. For example, a profit and loss statement may indicate that utility costs are higher this year, which could indicate inefficient usage or a need to invest in energy-efficient equipment.
A balance sheet outlines the assets of a business and its liabilities. It can help you identify a company’s current and long-term value by calculating the value of its inventory, accounts receivable, fixed assets and intangible assets. It’s often used by potential investors, lenders and suppliers to assess a company’s stability and viability.
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