A financial report is an official document that captures all significant financial activities within a company over a particular period. It’s not only used internally by managers to make informed decisions but is also examined by potential investors and banks. A well-written financial report can reassure investors that your business is financially viable, attract more funding, and grow faster.
The most important part of a financial report is the income statement. It shows all revenue streams as well as operational expenses that contribute to the bottom line. It is calculated by subtracting liabilities from assets (or shareholders’ equity). It includes a trial balance that lists the balances of all general ledger accounts at a point in time. It also includes a comprehensive set of notes that provide context and insight into the financial statements, accounting policies, contingencies, risk management practices, etc.
Lastly, the statement of changes in equity demonstrates the impact of net income, contributions from owners, and withdrawals by owners on shareholder’s equity. It is presented as beginning and ending balances of each equity account with explanations of how these balances changed over the reporting period.
The financial statement requires an adequate amount of time and effort to compile, but it’s a vital tool for your company’s health. It helps you manage your cash flow, budgets, and performance, and reassures potential investors that you’re a reliable partner. However, manual data entry and disorganized systems can turn this critical task into a tedious headache. Fortunately, there are ways to simplify your reporting process and improve the quality of your financial reports.
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