What are Accounting Reports?

Purpose

Key Takeaways

  • Accounting Reports are prepared for a specific purpose, like checking the ledger-wise transactions that occurred over some time.These financial reports are prepared from the accounting data of a business. Accounting reports also include financial statements such as cash flow statements, profit and loss statement and the balance sheet.

  • They provide information on the profitability of the day-to-day operations, cash flowsCash FlowsCash Flow is the amount of cash or cash equivalent generated & consumed by a Company over a given period. It proves to be a prerequisite for analyzing the business’s strength, profitability, & scope for betterment. read more and total debt, etc. Accounting reports also talk about the performance of a particular business segment, like the total sales made in a quarter. In other words, such reports bring into notice the financial position of the entity.The more accurately and correctly all the financial data is managed, the more convenient it is for the analyst to understand the company’s position and the changes it requires.

#2 Accounting Reports help with the following –

  • Helps in crucial business decisions – Accounting reports are crucial for the management. They often examine different financial statements to figure out better ways to maximize profits. It also helps them make critical and non-financial decisions like going for capital structuring of debt and equity. An example of an accounting report is that of a bank. Before extending a loan, the lender examines the borrower’s critical financial statements to ascertain whether they will be able to repay the debts or not.Short term decisions – An example could be preparing budgets, which an entity arrives at by predicting the revenues or expenditure in advance. This preparation will be impossible without referring to the business data.Investor analysis –  Investors analyze an entity’s financial model before investing their hard-earned money, which becomes easier with financial reports. Compliances Decisions – They assist the entities in calculating the correct amount of due tax, keeping in mind the regulatory guidelines.Goodwill/ Capital Reserve – Business acquisitions require an examination of valuation of goodwill or capital reserve which cannot be done without financial reports.

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Component

To understand the components, we need to dig deeper into bookkeeping. The recording of financial data or bookkeeping is called accounting. In the beginning, accounting took place in a manual form. But now, with the advent of technology, bookkeeping has become a computerized process. The most common types of accounting reports are Cash flow statement, Balance Sheet and Profit & Loss Account/ Income & Expenditure Account.

#1 – Balance Sheet

A Balance Sheet gives us a tabular view of an organization’s assets and liabilities on a particular date. A balance sheet components are non-current assets, current assets, cash and cash equivalents, non-current liabilities, current liabilities, and share capital.

#2 – Cash-Flow Statements

A statement that shows inflows and outflows of cash for a set period is a cash flow statement. There are two ways to prepare it. One is a direct method that considers the inflow and outflow from everyday operating activities. The other is an indirect method that records the movement of cash occurring in operating, investing, and financing activity.

#3 – Profit & Loss Account

It is a statement showing all the expenses incurred and revenues earned for a particular period.

Some more uses of Accounting Reports

  • They give a compiled view of all the financial information. Hence they are time-saving and allow taking the corrective measures.If there is no compilation of data, the comparison of current data with that of the previous year will become impossible.

This has been a guide to what accounting reports are. Here we discuss the purpose, components of Accounting Reports, and their needs and benefits. You can learn more about finance from the following articles –

  • Annual ReportAnnual Financial StatementsFinancial ReportingBudget Report