Important Accounting Reports for Your Small Business

No matter what type of business service you’re offering through your small business organization, by organizing your entire accounting process you can develop, improve and expand your business. Keeping all the accounting reports updated can help you in tax filing process. There are few financial reports that every business owners should maintain to properly understand how the business is working, what are the improvements and what measures can be taken to re-shape an area that is not functioning well:

Profit & Loss (P&L) Statement- This report is vital for every business. P&L statement helps you to understand business income, costs and expenditures for any given time period. Without a proper profit and loss report you won’t be able to strategize your business and expected costing for the same. Because such report can provide you a detail idea about your business costing, like how much you’ve spent for marketing and advertising activities, how much for traveling, what about your internet costing and many more. This report also brings the data about your business income and related sources. While going through a right consolidated report you can easily understand the areas and activities that are giving you profit in your business.

Business owners should check this report every month to understand the profit and loss in business. It’s always good to compare your present report with previous month and same time period in prior year. This way you could realize whether and how your business is improving.

Balance Sheet – This is one of the important reports to check your organizations’ financial health for a given moment. A balance sheet is basically two sided chart having three components there – Assets, Liabilities and Equity. Assets come on one side and liabilities and equity both come on other side. This report can offer you a snapshot of what your business has and owes at a given time. Here the assets might include property, computers and many more that are saleable physical and intangible property. Liabilities generally include things like credit cards, business loans etc.

The total of each side of the balance sheet needs to show the same amount in order to assess your balance sheet is properly balanced.

In order to define the relationships between the three amounts the below formula could be used:

For corporations:

Assets = Liabilities + Shareholder’s Equity

For sole proprietors:

Assets = Liabilities + Owner’s Equity       

Cash Flow Statement – To know about the incoming and outgoing transactions of your business cash flow statement plays a very useful role here. The statement tells you about how you’re earning and spending your money, flows (in and out of the business) of cash.

There is a difference between income statement and cash flow statement. Sometimes it’s normal to see that your income statement showing great performance and very good business profit. But till you could have no cash remaining in the bank. Such situations could happen when most of the sales of your business made on credit, and you might not be monitoring the cash flow of your business. Ensuring about the cash situations of a business is quite important.

The cash flow statement of your business provides a widespread view of your business operations, where your business in making money, how you make choices about your expenses. Business investors always need to properly analyze the cash flow statement.

 

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