Accounting Reports

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What are Accounting Reports?

Accounting Reports are prepared for a specific purpose, like checking the ledger-wise transactions that occurred over 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 statements, and the balance sheet.

Companies maintain financial accounting reports to get a clear picture of the status of their financial growth. Companies follow Generally Accepted Accounting Principles (GAAP) and its framework to ensure accuracy and ease in filing the tax returns yearly. Therefore, It is important to note that these companies might want to follow the same method of maintaining their books to ensure consistency.

What are Accounting Reports?

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.

Accounting Reports Explained

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

The two major reasons for organizations to adopt financial or management accounting reports are as discussed below:
#1 - Every business needs to prepare its financial statements - By recording the everyday financial transactions, necessary business decisions occur. However, financial statements of a fiscal year are financial reports that highlight an organization's overall health.

They provide information on the profitability of the daily operations, cash flows and total debt, etc. Accounting reports also talk about the performance of a particular business segment, like the total sales made in a quarter. Therefore, 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. This helps them understand 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 expenditures 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 for which financial reports play a major role.

Examples

Let us understand the concept of financial accounting reports with the help of a couple of examples.

Example #1

Knight Ltd., is a company that provides CRM solutions to its clients. Its newly appointed CEO Elissa wanted to gain insights into the financials of the company. Since drafting plans can be done according to the findings of the analysis.

In the meeting with the accounting team, they took a close look on the company’s balance sheet, cash flow statement, and the income statement. Upon comparing their numbers with the previous year, they found their return on investment (ROI) and working capital ratio were well beyond their growth estimates.

This gave Elissa a clearer picture on how she would curate the action plan.

Example #2

Stellar Bancorp, Inc is a full-service bank that provides both personal and commercial banking, investment services, and real estate loans. In January 2023, they declared their financial accounting reports for the previous year.

In the reports, their earnings increased from $0.04 per diluted share to $1.47 per diluted share. Therefore, their net income increased from $2.1 million to $51.4 million.

These data points were possible through the consistent and prompt maintenance of accounting reports.

Types

To understand the types, we need to dig deeper into bookkeeping. Accounting is documentation of financial data. In the beginning, accounting took place in a manual form. However, 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 Accounts.

#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.