What are Accounting Reports?
Accounting Reports are prepared to be used in a specified manner and for a specific purpose sometime to check the ledger-wise transactions occurred over a particular period. These reports are also known as compiled financial statements which include but not limited to the cash flow statements, profit and loss statement and the balance sheet along with cash/bank book of the enterprise.
Purpose of Accounting Reports
#1 – Every business needs to prepare its financial statements, which provide the analyst with all information about operations, financial positioning, and cash flows compiled in one place. The report made is required to decide upon the financial matters and accordingly, allocate the funds of the business.
#2 – Accounting Reports can be used for many purposes, including:
- Helps in Decision Making of Lenders: From Information compiled in accounting, reports lenders used to determine whether they should further extend credit to the entity or should revoke the amount of credit extended.
- Helps Investors to Decide whether to Invest or Not: The investors need to analyze the financial model of the entity before investing their hard-earned money in any entity, the report prepared helps them to analyze all such information in one place.
- All Compliances Decisions: The entity earns and needs to pay some taxes levied thereupon, to analyze such amount and to timely comply with the regulatory guidelines one has to observe such reports.
- Goodwill/ Capital Reserve: When someone wants to take over the business, then for the valuation of goodwill or capital reserve, one needs to analyze such reports prepared thoroughly.
For the success of every business, the recording and maintenance of data properly play a vital role; the management of data in a result-full manner is known as accounting. The scope of accounting has drastically increased over some time. Accounting, in the beginning, was started in physical and manual form and now has developed to the electronic level and managed electronically. The significant components of Accounting Reports contain Cash flow statement, Balance Sheet and Profit & Loss Account/ Income & Expenditure Account.
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#1 – Balance Sheet
This gives us a tabular view of entities’ assets and liabilities on a particular date, which includes non-current assets, current assets, cash and cash equivalents, non-current liabilities, current liabilities and share capital part.
#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 daily operating activities and has a limited area to cover. Other is an indirect method that covers the fund flow of business as a whole, whether it is of operating, investing, or financing activity.
#3 – Profit & Loss Account
The statement showing all the expenses incurred whether in cash or not and all the revenues earned, whether from business activities or activities incidental to the main object of the company resulting in net profits/ loss for a particular period, is a statement of profit and loss.
The preparation of accounting reports will also help in the preparation of various budgets, which entity may prepare to predict the revenues or expenditure in advance. The more accurately and correctly data is managed, the more it is convenient for the analyst to understand the position of the business and explain them to the concerned person for taking measures.
Need for Accounting Reports
- Analyzing and observing the financial statements as a whole, when there is no compilation of data is too time-consuming. Due to its time consumption, one avoids regularly observing the data and results; the accounting reports give the compiled view of all financial information in one place; hence is time-saving and allows timely initiative of corrective measures where required.
- If there is no such compilation of data, the comparison of current data with the previous year data becomes impracticable as it becomes very hectic and lengthy; it also provides a comparative view of data of current and previous year.
- To create an extraordinary image in the mind of creditors or lenders, one must have to pay on time the dues, for timely payment of such dues, one also needs to analyze the data which can be analyzed from the Accounting Reports drafted.
Benefits of Accounting Reports
- It gives us a compiled report of all the ledgers and business transactions in one place, which could easily be compared and observed over some time.
- It is easy to prepare and is very detailed to analyze the financial position of the entity.
- This could be opted by small businesses as well as large organizations as it is simple and less time-consuming.
The term “Accounting Reports” this is simply a grouped or compiled form of all the transactions which were transacted over a set period whether they are economical or not, it includes expenses incurred, revenues earned, provisions made, losses incurred, etc. which we can easily compare with the previous period data to analyze whether the financial model of the enterprise is on the right track or not or it needs to be changed and updated as per the present situation of the business, so as the objectives may be achieved as in the manner it should be.
This has been a guide to what are Accounting Reports. Here we discuss the purpose, components of Accounting Reports, and their needs and benefits. You can learn more about finance from the following articles –