Most business owners understand the value of keeping their finances and accounting records organized for tax purposes. Yet, many tend to underestimate just how valuable these reports are.
Reviewing finances and accounting reports can help guide your business decisions and ultimately help you improve, grow, and expand your business.
To prove just how valuable they are, let’s take a look at some of the ways accounting reports can help your business.
How accounting reports help your business
As one of the top public accountants in St. Catharines, DDL & CO are aware of the numerous ways accounting reports can help your business. Here are just a few examples of how reviewing and evaluating accounting reports can assist your business:
- Helps with filing business taxes
- Provides insight into your business’s financial health, which you can utilize to make well-supported decisions
- Identifies the profit of a specific product or service
- Helps business owners stay on budget
- Reduces the risk of reporting inconsistencies to investors and financial managers
Now that you have a better understanding of how valuable these reports are, let’s discuss the five accounting reports you should review.
The balance sheet is a financial statement that summarizes a company’s total assets, liabilities, and equity at a specific point in time, typically at the end of an accounting period. It provides businesses with an opportunity to evaluate their financial reserves and liquid assets.
The balance sheet also helps potential investors or lenders understand the financial health of the company.
To get the most out of this report, business owners should not only assess recent balance sheets but also compare them to documents from over the years. This allows them to determine whether the financial well-being of their company has improved or declined and adjust accordingly.
An income statement is a report that details overall expenses and revenue to determine a company’s overall net profit. Also referred to as a profit and loss statement, this report takes all the company’s income, revenue, and sales and then subtracts its expenses to see if it’s making a profit.
Income statements are important for budgeting, strategic planning, and financial forecasting. They highlight how well the business is performing while allowing you to quickly identify problem areas and compare finances with targets, budgets, and projections.
This report, among several other financial statements, is used by lenders, investors, and other partners to understand the business, its health and sustainability.
Cash Flow Statement
This next document is one of the most vital reports business owners should analyze. A cash flow statement identifies how much cash was generated by the business and how it was used.
Although it sounds like the above reports, it is quite different. Unlike the balance sheet and income statement, the cash flow statement only considers cash money activity. It does not account for any non-cash activities like sales or purchases made using credit.
The report is presented in three sections – operating activities, financing activities, and investing activities- and highlights which areas of the business are generating and using the most cash. It also helps businesses determine if they’re generating cash consistently or losing it.
Accounts Receivable Aging
It’s easy to assume that once the work has been done and the invoice has been sent to the customer everything is taken care of. However, this is simply not the case. You must also take the time to ensure that these payments are collected promptly.
One of the most common sources of cash flow issues for small and medium-sized businesses is poorly-supervised accounts receivables. Fortunately, the accounts receivable aging report categorizes outstanding accounts based on their due dates.
By regularly reviewing these reports you will develop an understanding of running balances, which customers are regularly late with their payments and which ones routinely pay on time.
It’s important to note that the more money you have tied up in accounts receivable, the less you will have available for business operations.
Accounts Payable Aging
Accounts payable aging reports show how much money your business owes others.
The report provides businesses with a quick overview of all payments that are due in the immediate future. Typically, the accounts payable aging report categorizes payments into different time intervals, like a 30-day period.
You can optimize this information to manage cash flow, build budgets, and calculate future expenses.
DDL Accounting can help you with your accounting
As one of the top full-service accounting firms in St. Catharines, DDL & CO can help you develop and understand these reports so you can make data-driven decisions for your business.
Here at DDL & CO, we strive to provide you with a deeper understanding of your business’s performance and risk. We pride ourselves upon providing reliable, timely, and accurate services at an exceptional value to all our clients.
Give us a call at (905) 680-8669 or request an appointment to get started with one of our trusted and dependable advisors.