What is a finance report? Definition, goals of reporting & types of financial reports

Businesses in the United States will generally issue financial reports in compliance with Generally Accepted Accounting Principles (GAAP). These standards look to streamline reporting for all businesses, giving investors and lenders more comparability. Businesses that operate globally will often comply with International Financial Reporting Standards (IFRS).

Annual financial reports are the most common timeframe used; however, some public companies are required to issue quarterly financial statements for investors. Nevertheless, most small business owners will issue annual reports and use the data to file tax returns.

Types of Finance Reports

Financial reports can track different things, including profitability, overall financial health, and liquidity. There are three main financial reports, including:

Statement of Income

This finance report tracks the revenue and expenses of your company for a specific period of time. By breaking down different income streams and expense categories, you are able to see the financial performance of your company, including overall profitability.

Balance Sheet

This financial report tracks the overall financial health of your business, including outlining what you own, owe, and have earned since the inception of your company. Your balance sheet has three main components: assets (items you own), liabilities (items you owe), and retained earnings (what you’ve earned, withdrawn, and contributed).

Statement of Cash Flows

This finance report tracks movements in your cash accounts. There are three main sections on a statement of cash flows, including cash flows from operations, cash flows from investing activities, and cash flows from financing activities.

The Goals of Financial Reporting

Financial reports are useful for a variety of reasons, from clarity into your business’s financial condition to documentation when looking to secure a new loan or investor. Here are a few more goals of financial reporting:

Provide Comprehensive Information to Investors

Investors need to know how their capital is being deployed in your organization. Ineffective use of capital can lead to low returns. With comprehensive annual reports, investors can evaluate the financial data of your business and determine if they want to continue investing or reallocate their funds elsewhere.

Manage Cash Flow

Cash flow management looks to improve the cash flowing in and out of your business. A positive cash flow indicates your business earns more than it spends, while a negative cash flow highlights that your business is losing money. Effective cash flow management helps your business scale and remain profitable, which is one of the goals of financial reports.

Improve Your Business’s Financial Condition

Monitoring your assets, liabilities, and equity is important as a business owner. For example, if you take on too much debt, your business might not be able to repay them. Financial statements track the financial position of your business, helping you remain agile in your decision-making.

How to Improve Financial Data Accuracy

When engaging in finance reporting, it’s important to ensure that the data in your accounting system is accurate. Here are a few tips to ensure accuracy in your finance reporting:

• Verify Transaction Classification – Some accounting systems will default categorizations to transactions flowing in from your bank statement. Always double-check these categorizations for accuracy.
• Complete Monthly Bank Reconciliations – Completing monthly bank reconciliations is a great way to verify that all transactions have been accounted for and that there are no material misstatements.
• Utilize AP and AR Software – Accounts receivable and accounts payable are two crucial functions in your finance reports. Outsourcing these tasks to specialized software can improve accuracy.
• Work With a Professional – A professional accountant will know exactly what to look for when verifying the accuracy of your financials. In some cases, lenders and investors will require a licensed accountant to analyze your financials.

Summary

• Finance reports track the financial data of your business, with common statements including the Statement of Income, the Balance Sheet, and the Statement of Cash Flows.
• US-based businesses will generally abide by Generally Accepted Accounting Principles, while international businesses will follow International Financial Reporting Statement Standards.
• The goals of financial reporting include providing comprehensive investment information to investors, managing cash flow, and improving the financial condition of your business.

Verifying the accuracy of your financial statements can be done by looking over transaction classifications, completing monthly bank reconciliations, using specialized reporting software, and working with an acc