Financial Reporting is essential to any business. Financial reports may consist of numerous different types of reports, but the primary reports are; balance sheet, income statement (sometimes referred to as a Profit and Loss or P&L), and cash flow statement. Business owners should be able to read financial reports. The reports are critical to the operations of the business.
The balance sheet contains your assets, liabilities, and equity. The balance sheet formula is assets=liabilities + equity. It is important that these items are recorded correctly. It is important that the company’s assets and liabilities are correctly recorded. There are numerous factors that depend upon this information such as depreciation of your assets and long term loans. If your company is ever evaluated, they are going to check your balance sheet for the assets and liabilities of the organization. I look at the balance sheet as the long term financial report. This is the report that proves the net worth of the company.
The income statement (P&L) is essential to the operation of the business. The accountant or bookkeeper will spend most of their time categorizing income and expenses. Proper categorization of these items are critical to accurate reporting. This report is the paycheck of the business. This report is going to show how much money is being made periodically, whether you run this report each day, month, quarter, or year.