Accounting reports are statements that show the financial health of a business. Some reports show the results of a company’s operations over time; others reveal a snapshot of a company’s financial condition at a particular moment.
Common examples of accounting reports include balance sheets, profit and loss statements, statements of free cash flow, and statements of owner equity. There are also consolidated earnings statements (for companies that have multiple departments or divisions), as well as more specialized reports, like accounts receivable aging. But all of these reports have the same goal: to reflect the current financial state of a business.
These accounting reports are prepared regularly by a company’s senior management to guide company strategy and facilitate decision-making. Reports prepared according to generally accepted accounting standards can also be used to present to shareholders, lenders or insurers for various purposes.
These reports are not normally used in tax filings, but when used appropriately, they can certainly help small business owners understand their potential tax liability at any particular point in time.
For most of use, when we think of accounting reports, we immediately think of taxes. And, sure, taxes are always a consideration when reviewing a company’s financials. But these reports are much more impactful and much more commonly used for other purposes. Most notably, these reports are used by management within a company to get insight into what’s happening in the various segments of a business and make decisions about its operation – how to generate revenue and grow profits.
Some other situations where accounting reports are especially significant include:
Conducting a business valuation
Getting prequalified for a small business loan
Determining business insurance types and coverage requirements
For larger companies, accounting reports are also important for presenting the company’s financial condition to shareholders, so they know what’s happening within the company. These reports provide key insights into the financial status of a company and the results of its recent operations.