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Analytics is the backbone behind every business, allowing you to know what’s working and what’s not, and serve as a guideline for future modifications to the business model needed to keep things on the rise. When it comes to accounting reports, the survival of the business highly depends on this data, so it’s crucial to stay on top of these, making sure they’re as accurate as possible and always on time. Accounting is a deep and complex area of a business, but on the surface of it are a few of the most important and basic aspects that will be the foundation for the rest, and therefore they should never be neglected by the business. These come in the form of reports, namely the income statement, balance sheet, and cash flow statement, and it’s a good idea to run all of them on a monthly basis.
The income statement, also known as the statement of financial performance, answers the question everyone is wondering: how much money did the company make? To give that final number at the bottom, this report needs to detail what the expenses went towards and where the revenues came from, leaving you with a net amount at the end that is hopefully positive. Expenses and revenues go beyond basic sales and expenditures, including more detailed aspects such as the depreciation of equipment, interest on loans, and more. The younger a business is, the more often it should generate an income statement since high start-up expenses will likely be incurred, there is more uncertainty about the revenue stream, and overall, closer monitoring is required.
Important for having an idea of what the business owns and owes at any given moment, the balance sheet is composed of the assets, which represent the former, the liabilities which are the latter, and as well as equity. If everything is done properly, the magic formula of ‘Assets = Liabilities + Equity‘ should always be in check. Since balance sheets are just a snapshot of the company’s situation and can’t show any movement over time, they should be generated often and compared. The idea is for the number representing assets to continuously increase.
The cash flow is exactly what it sounds like – a report documenting the amount of cash that flowed in and out of a company’s bank account over a certain period of time. In order to calculate the cash flow, the figure from the income statement will be used as the starting point. The two reports are similar but the cash flow one strictly talks cash, while the income statement includes more ambiguous elements like depreciation. The cash flow report is especially important because it will alert the business if there is a shortage of cash, which is different from a negative result in the income statement. A cash shortage could be detrimental for a company as it’s what’s needed to cover operating costs, so keeping a close eye on this report is a good idea.
On top of considering the frequency at which these reports should be generated, seeing the amount of detail they involve can be daunting. Luckily, there are plenty of tools available to help with these tedious tasks and make our lives much easier. Platforms like FreshBooks, Xero, and Sage Business Cloud Accounting can automatically generate the reports mentioned as often as you need them, in addition to other ones (creditor reports, dividend reports, accounts payable, etc.) which is a huge time saver, allowing you to lower expenditures for this type of labor in that income statement. Great news for accountants and businesses as a whole.
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