When it comes to your statement of financial performance, one solution doesn’t fit all. In fact, as your business grows, your financial statements should grow as well. The primary purpose of these statements shouldn’t change, which is to provide business owners with actionable information. However, as a business matures, things get complicated, and if your reports are not up to speed, your business will not be able to keep up.
There is no hard and fast rule about the type of financial statements a business should use. Still, when a financial statement report needs to be submitted, some necessary statements are a must. Let’s find out which one are these.
What are Your Necessary Financial Statements?
P&L Statement
Also, referred to as the income statement, a profit and loss statement reveals the organization’s revenue, expenses, and net income for a particular accounting period. Other information you can get from this statement includes:-
1. Total sales
2. Cost of revenue
3. Taxes paid
4. Interest expense
5. Operating profit
Balance Sheet
Next up is the balance sheet. Perhaps the most important statement of financial performance. It gives a summary of your company’s financial position by revealing its assets, liabilities, and shareholder’s equity. This statement of financial performance provides vital data about everything related to accounting and finance, ranging from accounts receivable, debts, cash & equivalents, long-term investments to retained earnings and number of shares outstanding.
Statement of Cash Flow
Majority of businesses suffer from cash flow issues, mainly because this statement of financial performance is not taken seriously. If you don’t want any signs of trouble in the cash flow, ensure that the statement of cash flow is included in your weekly, monthly, and annual financial statement reports. It shows how your company’s liquid assets (cash and stock) are rising or falling over time.
How does it work? Positive cash flow indicates more money is flowing in than out. Conversely, negative cash flow means your company is in a financial conundrum.
The previously mentioned financial reports are an excellent start, but a business owner needs more details to make informed decisions. It takes more than a simple balance sheet to run a successful business, which is why there are some other reports that your organization might need to include in its financial statement report. Some of which are: –
Accounts Payable
An accounts payable report gives you an insight into the company’s payments on short term or recurring debts. You can use these reports to verify all bill payments, track the history of payments made, etc.
Accounts Receivable
Your business cannot stay afloat if you are giving away products for free, right? Which is why you need to maintain records of every payment you receive against services rendered or products sold.
An accounts receivable report allows you to see where your company stands concerning payments received from customers. What is your average collection period? Do you have more number of delinquent accounts than positive?
Inventory Reports
Another essential statement of financial performance is an inventory report. This report gives you information about how quickly your business is turning over the inventory that it has in stock. For example, how much stock are you selling in a week, month, or year, and how much you have piled up?
Managing inventory efficiently can be a challenge, but with the help of these reports and proper entries, you can remain on track.
Cash Forecast
Cash forecast is perhaps the most crucial element of your company’s financial statement audit report. It gives an exact picture of how much cash you have at hand at a particular time, but this doesn’t help you plan for the coming period. So, what is the point of preparing this report? It enables you to identify any significant equipment acquisition or payments due outside the norm.
Bottom Line
The first rule of accounting – know your numbers.
The combination of these financial reports can enable you to ensure compliance and make informed decisions. At the same time, you can look forward to assisting with the growth of your business and avoid potential threats in your company’s success.
