There are different types of financial reports in the business. Everything is adjusted to the form of transactions that occur within the company. Because each of these reports has a different function and principle, those who make this report must be able to distinguish the preparation of financial statements according to their designation.
The following is an explanation of the main types of company financial statements.
Income Statement
The income statement is a company financial report that is made by the business to find out the expenses and income of the business in detail. The contents of this report are income data as well as expenses borne by the company.
Usually, this report is made to explain the company’s financial condition at a certain period. Therefore, most reports are done at the end of the year or the end of the month, according to the provisions of the company.
With the income statement, stakeholders can find out the company’s current financial condition so that the report can be used to evaluate the next policy steps.
There are two types of income statements commonly used by businesses, the first is a single step, and the second is multiple steps.
What are single-step profit and loss?
This report is simple and does not contain details of the financial turnover that occurs in the company. A single-step income statement shows only one income category and one expense category. The equation used in the single-step income statement is:
Net Income = (Revenue + Gain) – (Expense + Loss)
The single-step income statement uses basic accounting equations directly from your business’s financial activities. It is easy to understand, create, and suitable for small businesses.
What is a multiple-step income statement?
A multiple-step income statement contains more general information than a single-step income statement but uses many equations to determine the overall income statement.
The multiple-step income statement breaks down operating income and operating expenses as well as non-operating and non-operating expenses.
This income statement separates the income and expenses directly related to the business’s operations from those not directly related to its operations.
The multiple-step income statement uses three different accounting formulas to find the final value in net income:
1. GROSS PROFIT = NET SALES – COST OF GOODS SOLD
The cost of goods sold is deducted from net sales. This gives a gross profit.
2. OPERATING INCOME = GROSS PROFIT – OPERATING EXPENSES
Operating expenses are deducted from gross profit. This gives you operating income.
3. NET INCOME = OPERATING INCOME + NON-OPERATING ITEM
This last figure gives the net profit or loss of the business for the reporting period.
Capital Change Report
The statement of changes in capital or equity is one type of financial report that is important, especially for public companies. The purpose of making it is so that the company can describe the increase or decrease of net assets (wealth) in a certain period with certain measurement principles to be followed.
Why would these financial statements be found in various large or public companies? This is because most of them have a complex ownership structure in the changes in equity accounts in the related year.
The purpose of forming a capital change report is to provide a report on changes in working capital and to make an overview of investments and funds generated in a period and payment assets.
Notes to Financial Statements
The notes to the financial statements refer to additional information that helps explain how the company arrived at its financial statement numbers.
Financial statement records are not mandatory, only to provide clarity to those needing it without having the information in the statement column. However, the information included in the notes to financial statements is often important because it can reveal fundamental problems with a company’s financial health.
Financial reports are really helpful in understanding the current and future financial status of any company. Financial reports help investors, stakeholders, lending bankers, and business owners understand a company’s financial standing. The financial reports can be created daily, monthly, and yearly, depending on the necessity.
Financial reports help in understanding and maintaining the long-term goals of a company. Financial statements of any company are beneficial in determining:
- The cash flow status
- How can a company generate cash flow
- Where the cash can be used for short and long-term goals
- All details of business transactions
- Identification of potential issues
- Profitability ratio
- Evaluating the company’s debts
What are the most important financial reports for a small business?
Business bookkeeping remains intact with monthly financial reports. It helps a company make more money. Here we will discuss three major types of financial statements for understanding a business in a better way.
Balance Sheet
The balance sheet can determine the financial health of the company. The balance sheet comprises assets, liabilities, and equity. The total of two sides – liability and equity- should equal the number of assets. If the two sides are similar, the balance sheet is appropriately maintained.
Profit and Loss Statement
A company’s revenue and expenses that result in profit and loss can be determined by the profit and loss statement. It is also called an income statement that provides insight into a company’s profit generation. Here is a way to create the profit and loss statement of your company:
- 01: Each row must have a quarterly and annual amount.
- 02: Each quarter’s net income or sales should be written.
- 03: Business expenses for each quarter should be itemized. Each expense needs to be shown in the sales percentage. The expenses need to be equal to 100% of sales.
- 04: Here is the point to differentiate between expenses and sales.
- 05: The total interest on the business debt for the entire year should be mentioned.
- 06: Mention the estimated taxes on the net income.
- 07: The total depreciation and amortization for the year should come here.
- 08: You will get an amount, which can be your profit or loss.
Cashflow Statement
Cashflow is the most detailed type of financial report, which shows the details of all incoming and outgoing transactions. The money spent by your company is indicated in the cash flow statement.
A cash flow statement gives an overall view of the business operations, how a company makes money, and where it is spent.
How can financial reports help your business grow?
Profit and Loss
Keeping your profit and loss statement is the best way to help your business grow. It will help you get the earnings after paying for the expenses. You can spot the numbers that went upward or flat or went downwards. These trends help make business decisions.
Expense Trends
There is a problem if your business grows but you cannot save money. To avoid this, you should keep a check on business expenses. It clearly shows that your expenses are increasing more than your revenue. The total expense statement can help you carve out the necessary costs and expel the extra ones.
Account Receivable
It is the money that you have to take from your clients. The balance sheet can tell you the details of all the unpaid invoices owed to your company.
Profit per Customer
It is also essential to check each customer individually. Few customers get you a higher profit than the other ones. Therefore, staying with the benefits for your company’s finance is better.
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